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International Trade- Equilibruim

Wholesalers of roses (the firms that supply your local flower shop with roses for Valentine's Day) buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the United States. The demand schedule is the wholesaler's demand and the supply schedule is the U.S. rose growers' supply.

Price (dollars per container) Quantity demanded Quantity supplied
(millions of containers per year)

100 15 0
125 12 2
150 9 4
175 6 6
200 3 8
225 0 10

Wholesalers can buy roses at auction in Aalsmeer, Holland, for $125 per container.

a. Without international trade, what would be the price of a container of roses and how many containers of roses a year would be bought and sold in the United States?

b. At the price in your answer to a, does the United States or the rest of the world have a comparative advantage in producing roses?

c. If U.S. wholesalers buy roses at the lowest possible price, how many do they buy from U.S. growers and how many do they import?

d. Draw a graph to illustrate the U.S wholesale market for roses. Show on the graph the equilibrium in that market with no international trade and the equilibrium with free trade. Mark on the graph the quantity of roses produced in the United States, the quantity imported, and the total quantity bought.

Solution Preview

Please find the attachment for illustrations and a better formatted solution.

a. Without international trade, what would be the price of a container of roses and how many containers of roses a year would be bought and sold in the United States?

Supply and Demand graph meets equilibrium at $175 for strictly domestic production

b. At the price in your answer to a, does the United States or the rest of the world have a comparative advantage in producing roses?

The rest of the ...

Solution Summary

Uses a hypothetical rose market to illustrate international market equilibrium. Supply and Demand curves and the effect of globalization on local markets.

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