Question

Suppose Foreign had been a much smaller country with domestic demand. D* = 8 - 2P, S* = 4 + 2P Recalculate the free trade equilibrium and the effects of a 1.5 specific tariff by Home. Relate the difference in results to the discussion of the small-country case in the text. (Notice that this implies the Foreign price of books in the absence of trade would have been the same as in problem 2). (This is problem 2 info: Now add Foreign, which has a demand curve D* = 60-10p And a supply curve S*=20+10P a. Derive and graph Foreign’s export supply curve and find the price of books that would prevail in Foreign in the absence of trade. b. Now allow Foreign and Home to trade with each other, at zero transportation cost. Find and graph the equilibrium under free trade. What is the world price? What is the volume of trade?)

          Suppose Foreign had been a much smaller country with domestic demand.
D* = 8 - 2P, S* = 4 + 2P
Recalculate the free trade equilibrium and the effects of a 1.5 specific tariff by Home.
Relate the difference in results to the discussion of the small-country case in the text.
(Notice that this implies the Foreign price of books in the absence of trade would have been the same as in problem 2). (This is problem 2 info: Now add Foreign, which has a demand curve D* = 60-10p And a supply curve S*=20+10P a. Derive and graph Foreign’s export supply curve and find the price of books that would prevail in Foreign in the absence of trade. b. Now allow Foreign and Home to trade with each other, at zero transportation cost. Find and graph the equilibrium under free trade. What is the world price? What is the volume of trade?)

Added by Evan H.

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