Now find the free trade equilibrium, assuming no transportation costs or tariffs, by setting P = P* and D+D* = S+S*. Solve for the free trade price, and the quantities demanded and supplied for both countries. Show your solution on your supply and demand diagrams, and solve for each country's consumer and producer surplus. How much does the total surplus in each country rise as a result of free trade?

Now find the free trade equilibrium, assuming no transportation costs or tariffs, by setting P = P* and D+D* = S+S*. Solve for the free trade price, and the quantities demanded and supplied for both countries. Show your solution on your supply and demand diagrams, and solve for each country's consumer and producer surplus. How much does the total surplus in each country rise as a result of free trade?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter28: International Trade

Section: Chapter Questions

Problem 15P

See similar textbooks

Similar questions

If opening up to free trade would benefit a nation, then why do nations not just eliminate their trade barriers, and not bother with international trade negotiations?
You just overheard your friend say the following: Poor countries like Malawi have no absolute advantages. They have poor soil, low investments in formal education and hence low-skill workers, no capital, and no natural resources to speak of. Because they have no advantage, they cannot benefit from trade. How would you respond?
If trade barriers hurt the average worker in an economy (due to lower wages), why does government create trade barriers?
Assume two countries, Thailand (T) and Japan (J), have one good: cameras. The demand (d) and supply (s) for cameras In Thailand and Japan is described by the following functions: QsT=-5+14P QsJ=-10+14P QdT=60-P QdJ=80-P P is the price measured in a common currency used in both countries, such as the Thai Baht. Compute the equilibrium price (P) and quantities in each country without trade. Now assume that free trade occurs. The free-trade price goes to 56.36 Baht. Who exports and Imports cameras and in what quantities?
How do trade barriers affect the average Income level in an economy?
If trade increases world GDP by 1 per year, what is the global impact of this increase over 10 years? How does this increase compare to the annual GDP of a country like Sri Lanka? Discuss. Hint To answer this question, here are steps you may want to consider. Go to the World Development Indicators (online) published by the World Bank. Find the current level of World GDP in constant international dollars. Also, find the GDP of Sri Lanka in constant international dollars. Once you have these two numbers, compute the amount the additional increase in global incomes due to trade and compare that number to Sri Lankas GDP.