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International Trade

Assume perfect competition. Yoland is a small country that takes world price of corn as given. Its domestic supply and demand for corn is given by the following:

Demand: D = 36-3P
Supply: S = 3p-9

a. Assume initially that Yoland does not open to trade. What is the autarky equilibrium price and quantity?

b. Suppose Yoland decides to engage in trade. Determine the quantity demanded, the quantity supplied, and import given the world price of $6 per bushel of corn.

c. If the government of Yoland imposes a tariff in the amount of $1 (i.e., t=$1), what is the new domestic price? What is the amount imported?

Solution Preview

a. Assume initially that Yoland does not open to trade. What is the autarky equilibrium price and quantity?
D=36-3P
S=3P-9
In equilibrium D=S, Put D=S
36-3P=3P-9
6P=45
P=$7.5 per bushel

D=36-3*P=36-3*7.5=13.5
S=3P-9=3*7.5-9=13.5

Equilibrium price=7.5
Equilibrium ...

Solution Summary

Solution determines the equilibrium quantities in absence and in presence of international trade.

$2.19