Question

Can someone help me answer these questions and explain why? I haven't had much experience with graphs like these and could really use some help understanding.

The countries of Swansea and Bristol have domestic supply and demand curves for wheat as shown in the graphs below (where both price axes are in the same units). Suppose the world price is between the domestic no trade prices of the two countries.

Swansea Bristol SDom

2. [7½ points] Consider what happens in Swansea as it transitions from no trade in wheat to trade in wheat.

(a) What happens to the price of wheat in Swansea?

(b) What happens to the domestic quantity of wheat purchased?

(c) What happens to the domestic quantity of wheat produced?

(d) Does Swansea export or import wheat?

(e) What group (producers or consumers) gains from the transition?

(f) What group (producers or consumers) loses from the transition?

(g) What group (producers or consumers) has the bigger change of surplus because of the transition?

(h) Does Swansea as a whole gain or lose from the transition?

3. [7½ points] Consider what happens in Bristol as it transitions from no trade in wheat to trade in wheat.

(a) What happens to the price of wheat in Bristol?

(b) What happens to the domestic quantity of wheat purchased?

(c) What happens to the domestic quantity of wheat produced?

(d) Does Bristol export or import wheat?

(e) What group (producers or consumers) gains from the transition?

(f) What group (producers or consumers) loses from the transition?

(g) What group (producers or consumers) has the bigger change of surplus because of the transition?

(h) Does Bristol as a whole gain or lose from the transition?

Answer 1

The answer of this question explains how international trade between two economies affect prices of two economies when their price level is different.