Suppose Qd=-32*P+858, Qs=28*P+12 for home and Qd*=-32*P+172, Qs*=28*P+36 for foreign. What is the free trade volume...
Suppose Qd=-32*P+858, Qs=28*P+12 for home and Qd*=-32*P+172, Qs*=28*P+36 for foreign. What is the free trade volume to two decimal places?
Homework Answers
Answer:
Under free trade, Exports of one country equals Import of the other.
For Home:
Qd = -32P + 858
Qs = 28P + 12
Imports = Qd - Qs = -32P + 858 - 28P - 12
Imports = - 60P + 846
For Foreign:
Qd = -32P + 172
Qs = 28P + 36
Exports = Qs* - Qd* = 28P + 36 – [-32P + 172] = 28P + 36 + 32P -172 = 60P -136
Equating Home Imports with Foreign Exports,
- 60P + 846 = 60P -136
120 P = 982
P = 982/120 = 8.18
Trade volume = 60P -136 = (60 x 8.18) - 136 = 490.8 - 136 = 354.8 = 355(aprrox.)
Thus trade volume is 355(approx.)
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