What will be the quantity supplied by country 1 to the rest of the world at a price of 10? (a) 6 (b) 9 (c) 12 (d) 18
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Akash M.
Assume we divide up the world into two regions: the United States and the rest of the world. We will examine the competitive market for simple 2 GB flash drives and the trade between the United States and the rest of the world. We know the supply and demand conditions in each region, which are summarized below: Rest of the World: Supply curve: P = 4+Qs P: Price of flash drives Qs: Quanity of flash drives supplied (millions) Demand curve: P=8-Qd Qd: Quantity of flash drives demanded (millions) United States: Supply curve: P=6+Qs Demand Curve: P=14-Qd With that information, you find that the equilibrium price of flash drives is P*=$6 in the rest of the world before trade opens, and Q*= 2 (million) flash drives will be produced and sold. In the United States, the equilibrium price of flash drives is $10, and Q*=4 (million) flash drives will be produced and sold before trade opens. a. Compute the export supply curve for the international market. Hint: use the excess supply for the exporting country. b. Compute the import demand curve for the international market. Hint: use the excess demand for the importing country. c. Compute the equilibrium world price and quantity of flash drives traded after trade opens, assuming that there is no tariff.
Andrew D.
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