Suppose the demand in the rich country is P=100-Q and supply is P=2Q. Draw this demand and supply diagram in autarky - a closed economy where no imports or exports are possible - with the standard axes (P vertical, Q horizontal). Mark carefully on the diagram the demand curve , the supply curve , and then work out the equilibrium (include your working out, not just the final result) . Show that welfare under autarky is 1,666.67 b) Suppose now that country A can trade freely. Add on the previous diagram a world price of 40 ; explain why no goods will be bought or sold at the autarky price anymore ; how much is demanded at world price 40?; how much is supplied? ; explain what happens to the difference between supply and demand at that world price . How large is welfare under free trade
a) Suppose the demand in the rich country is P=100-Q and supply is P=2Q. Draw this demand and supply diagram in autarky - a closed economy where no imports or exports are possible - with the standard axes (P vertical, Q horizontal). Mark carefully on the diagram the demand curve , the supply curve , and then work out the equilibrium (include your working out, not just the final result) . Show that welfare under autarky is 1,666.67
b) Suppose now that country A can trade freely. Add on the previous diagram a world price of 40 ; explain why no goods will be bought or sold at the autarky price anymore ; how much is demanded at world price 40?; how much is supplied? ; explain what happens to the difference between supply and demand at that world price . How large is welfare under free trade
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