Question

Two countries produce and consume T-shirts: the US and the ROW. Problems 1-2 are based on the supply and demand schedules for the two countries given below. Note: The supply and demand curves are straight lines. Quantities are in millions of T-shirts. US ROW 32 13 28 26 10 18 12 12 13 10 13 14 15 16
Suppose that the two countries open to trade. Describe an arbitrage strategy that will allow you to profit from the price differential between the two markets. Be sure to explain how it will work
Draw the import demand and export supply functions making sure to identify the P-intercepts. Note the equilibrium traded quantity (imports-exports) and the equilibrium world price. How much is produced (supplied) in the ROW after trade is opened? How much is consumed (demanded)?
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Answer #1

As per HOMEWORKLIB RULES second question is answered

Answer-

b.

       Considerthe given problem here “MD” be the import demand the difference between the “demand” and the “supply” of “US” and the “export supply” the difference between the “supply” and the demand” of the “ROW”.

So, here we can see the intercept of “MD” is “12”, => “P=12” be the autarkic price in “US” and the intercept of the “XS” is “7”, => the autarkic price in the “ROW” is “P=7”. Now, “E” be the equilibrium the intersection of “MD” and “XS”, where “P=10” be the equilibrium price and “6” be the equilibrium quantity.

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