The following is a stripped down partial equilibrium model o

The following is a stripped down partial equilibrium model of two countries (Domestic, D, and Foreign, F) producing a single good, X. The model assumes a perfectly competitive environment for the good in both countries. You are given the demand and supply functions for each country. Solve for all of the following.

Domestic:

Q_{d, D} = 30 – 2*P

Q_{s, D} = -2 + 2*P

Foreign:

Q_{d, F} = 36 – 4*P

Q_{s, F} = -4 + 4*P

In Autarky (no international trade), find the equilibrium price (P), quantity (Q), point price elasticities of demand and supply, Consumer Surplus (CS), Producer Surplus (PS) and Welfare (W) in each country.

1, Accurately draw and fully label the axes, excess demands, excess supplies and equilibrium price in the global market.

2, Which country exports? Domestic or foreign? How much does it export?

3, What is the elasticity of excess supply for the exporting country?

4, What is the elasticity of excess demand for the importing country?

5, Accurately draw and fully label the axes, demands, supplies, quantities demand and supplied, in domestic with trade and foreign with trade, at the global price.

Solution

by M Battisti · Cited by 32
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