PARTIAL EQUILIBRIUM MODELPНОМЕPFOREIGNSDQQ 2: FREE TRADE: now suppose we open to free trade.a) Depict the Excess DEMAND and SUPPLY curves. Then illustrate the free-tradeequilibrium output, consumption, and imports/exports for HOME and for FOREIGN.Use the 3-pane figure.b) Identify the new Consumer, Producer and Private Surpluses in Home and Foreign. Dothey rise fall? Explain what is happening and why.c) Show and explain why both countries can Gain from Free Trade. Give the intuition.

(a) Excess demand where at price P1 demand is more than the supply in the home. Excess supply where…

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Economics

PARTIAL EQUILIBRIUM MODEL P НОME P FOREIGN S Q

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

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Chapter1: Making Economics Decisions

Section: Chapter Questions

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Question

PARTIAL EQUILIBRIUM MODEL
P
НОМЕ
P
FOREIGN
S
D
Q
Q

2: FREE TRADE: now suppose we open to free trade.
a) Depict the Excess DEMAND and SUPPLY curves. Then illustrate the free-trade
equilibrium output, consumption, and imports/exports for HOME and for FOREIGN.
Use the 3-pane figure.
b) Identify the new Consumer, Producer and Private Surpluses in Home and Foreign. Do
they rise fall? Explain what is happening and why.
c) Show and explain why both countries can Gain from Free Trade. Give the intuition.

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