Question

NOTE: I only need parts F) and G). thank you.

1. In contrast to strawberries, Canada is a major exporter of wheat.  Canada’s demand (Q^D_CDN) and supply (Q^S_CDN) of wheat is given respectively by

Q^D_CDN= 80 – 20 P_CDN  and      Q^S_CDN= 40 + 20 P_CDN

            where P is the price per bushel of wheat.

1. Derive the excess supply curve of wheat for Canada. (3 marks)

Q_DCDN = 80 -20P

Q_SCDN = 40 +20P

Excess supply = 40+20P-80+20P

Excess = -40+40P

2. What will be the price at which Canada does not export wheat?  (3 marks)

When price or excess supply is zero. Therefore, P<1 will make export =0

3. China is the major importer of Canadian wheat.  Its demand (Q^D_H)and supply (Q^S_H)for wheat is given respectively by

Q^D_H= 100 – 20 P_H      and      Q^S_H= 20 + 20 P_H

                        Derive the excess demand curve for wheat in China. (3 marks).

            Excess Demand for china = 100PH -20 – 20PH

                                                             = 80 -40 PH

4. What would wheat price be in China in the absence of trade? (3 marks)

80-40PH = 0

PH = 2

Therefore, without trade it would be 2$.

5. If Canada and China are allowed to trade with one another, what will be the price and the volume of trade? (5 marks)

If they traded then excess Demand = excess Supply

-40+40P = 80-40PH

80PH =120

They will trade 20 units and the price will be $15.

6. The trade war has heated up and China imposes a tariff of 0.5 per bushel.  Determine the effect of the tariff on: (1) the price of wheat in each country, (2) the quantity of wheat produced and consumed in each country, and (3) the volume of trade. (15 marks)

7. Properly label to illustrate the excess demand for China and excess supply curve for Canada on the same graph with free trade and with the import tariff of $0.5 imposed. (8 marks).

Answer 1