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A new item that is manufactured and consumed only in United States and France is about to be launched. In the United States, the following demand and supply curves are appropriate:

QDU = 100 - 2PU
QSU = 5 + 2.6PU

Also suppose that a French producer is simultaneously ready to enter the USA and French markets with the following demand and supply functions (stated in USA prices):

QDF = 120 - 6.4PU
QSF = 5 + 3.2PU

a) Determine the pre-trade values of price and quantity in the USA? In France(in dollar terms)?
b) If the countries decided to trade, how would you find world demand and world supply?
c) In the absence of governmental intervention, what would be the amount produced in the USA? In France?
d) What is the amount consumed in both countries after trade commences? What would be the price (assume zero transportation costs)?
e) Who is better off and who is worse off?

2. Assume that the USA imposes a quota of three million units per month from France.
a) What would be the effect of this policy on the price in the USA?
b) Who is better off and who is worse off?

 

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M9310940

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