Question

Price (S/pound) The graph to the right shows the competitive equilibrium in the domestic cotton market in autarky (no trade). Suppose the world price of cotton is $7 per pound, and assume that the United States can buy as much imported cotton as it wants at the world price. Now suppose that the U.S. allows the free trade of cotton. 1.) Using the line drawing tool, indicate the world price of cotton and label it Pw 2.) Using the point drawing tool, indicate the quantity supplied at the world price and label it as 3.) Using the point drawing tool, indicate the quantity demanded at the world price and label it QD- 4.) Using the double arrow line tool, show the amount of cotton the US imports at the world price and label the line 'imports 2 10 11 12 13 14 15 Millions of pounds Carefully follow the instructions above, and only draw the required objects The gains to the U.S. from trade are valued at million (Enter your response rounded to two decimal places.)

Answer 1

price ($/pound) 12 + 6 millions of pounds imports =(Go-as) To calculate uns gains from trade, first we need to find out so and as. For that, we need to find out equation of demand and Supply curve. Two points on the demand curve are & (G, P.) = (0, 24) and (Q2, P2) = (1, 18) Slope (m) = P2-PI = 18-24 -6 -3 22-Q14 - 0 3 equation of demand curve P- Pi = m (Q-G1) 7 P - 24 = -3 (6-0) => 2P-48 = -30 30 = 48 - 2P = |Q = 16-2P/

Two points on the supply curve are =) (GP) = (0,0) and (az. R2) =(4,5) Slope (m) = P2 - P1 = 60 - 3 G₂-Q, 4-0 equation of supply curve - P-o = 22 (6-0) => 2P = 30.. TQ = 2P - At P = $7.Qp = 1.6-(2x ) = 16-19 = 48-14 3 34 #1138 os = 2x7 - W41834 14 price N ($ pound) ↑ Gains from thoide - PWN Po > Quantity millions of no pounds 0 8 34 Gains from tande = $x (4 - 19)(12-1)]milie = x 20 x 51 million = $16.67 million