Microeconomics 6th Edition by Robert Hall, Shirley Kuiper, Marc Lieberman

Exercise 9

In Figures 1 and 2,we assumed that the world price of a good was fixed,and not affected by the quantity of imports a country chooses. But if a country is large relative to the world market,its imports can influence the world price.
Suppose the market for good X involves only two large countries (A and B),with supply and demand schedules as shown below:
Country A Country B
a. Plot the supply and demand curves for each country.
b. Before international trade,what is the equilibrium price and quantity in each country? For the remaining questions,assume that the two countries can trade in good X.
c. Which country will export good X?
d. What will be the equilibrium world price? [Hint: This will be the price at which the quantity of exports from one country equals the quantity of imports to the other.]
e. What will happen to production and consumption in Country A?
f. What will happen to production and consumption in Country B?
g. What quantity will be exported (and also imported)in equilibrium?
h. On your graph,label the new levels of production and consumption in each country,as well as distances representing exports and imports
Figure 1: The Impact of Imports on Consumers and Producers

Figure 2: The Effects of a Tariff