Problem 1 Refreshing Trade Basics - Prices Consider the market for computers in two countries, Uruguay and Indonesia. Let's assume both have perfectly competitive domestic computer markets. In autarky (no trade), the equilibrium price of computers in Uruguay is $500, and 10,000 computers are sold. In Indonesia (under autarky), the equilibrium price of computers is $400 and 8,000 computers are sold. (a) Draw supply and demand (partial equilibrium) graphs for each of these two countries indicating how many computers are sold and at what price when neither country trades (b) Now Uruguay and Indonesia open themselves up to global trade of com- puters. Let's assume the global price of computers is $450. Describe qual- itatively what happens to the price consumers pay for computers in each of these two countries (relative to the original autarky situation) as well as how much domestic producers sell now relative to the no trade world. Also state whether each country is an importer or an exporter. 3 (c) Let's assume the demand for computers in Uruguay can be represented as Qd = 40 40.000-20P and the supply can be represented as Qs = 20P where P is price and Q and Q, represent quantity (demanded and supplied). What quantity will firms in Uruguay produce when open to world trade? What quantity will consumers buy? How many imports/exports will Uruguay houn (and will it ho in rta on portal?
Problem 1 Refreshing Trade Basics - Prices Consider the market for computers in two countries, Uruguay and Indonesia. Let's assume both have perfectly competitive domestic computer markets. In autarky (no trade), the equilibrium price of computers in Uruguay is $500, and 10,000 computers are sold. In Indonesia (under autarky), the equilibrium price of computers is $400 and 8,000 computers are sold. (a) Draw supply and demand (partial equilibrium) graphs for each of these two countries indicating how many computers are sold and at what price when neither country trades (b) Now Uruguay and Indonesia open themselves up to global trade of com- puters. Let's assume the global price of computers is $450. Describe qual- itatively what happens to the price consumers pay for computers in each of these two countries (relative to the original autarky situation) as well as how much domestic producers sell now relative to the no trade world. Also state whether each country is an importer or an exporter. 3 (c) Let's assume the demand for computers in Uruguay can be represented as Qd = 40 40.000-20P and the supply can be represented as Qs = 20P where P is price and Q and Q, represent quantity (demanded and supplied). What quantity will firms in Uruguay produce when open to world trade? What quantity will consumers buy? How many imports/exports will Uruguay houn (and will it ho in rta on portal?
Chapter1: Making Economics Decisions
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Transcribed Image Text:Problem 1 Refreshing
Refreshing Trade Basics - Prices
Consider the market for computers in two countries, Uruguay and Indonesia. Let's
assume both have perfectly competitive domestic computer markets. In autarky (no
trade), the equilibrium price of computers in Uruguay is $500, and 10,000 computers
are sold. In Indonesia (under autarky), the equilibrium price of computers is $400
and 8,000 computers are sold.
(a) Draw supply and demand (partial equilibrium) graphs for each of these
two countries indicating how many computers are sold and at what price
when neither country trades
(b) Now Uruguay and Indonesia open themselves up to global trade of com-
puters. Let's assume the global price of computers is $450. Describe qual-
itatively what happens to the price consumers pay for computers in each
of these two countries (relative to the original autarky situation) as well
as how much domestic producers sell now relative to the no trade world.
Also state whether each country is an importer or an exporter.
40.000
3
(c) Let's assume the demand for computers in Uruguay can be represented as
Qd = -20P and the supply can be represented as Qs = 20P where P
is price and Q and Qs represent quantity (demanded and supplied). What
quantity will firms in Uruguay produce when open to world trade? What
quantity will consumers buy? How many imports/exports will Uruguay
have (and will it be imports or exports)?
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