2. Analyze the impact of trade policy:

A. Home's demand and supply curve for wheat is:

D = 100 - 20P

S = 20 +20P.

Derive and graph home's import demand schedule and determine and show the price and quantity of wheat in the absence of trade.

B. Foreign's demand and supply curve for wheat is:

D* = 80 - 20P

S* = 40 +20P.

Derive and graph Foreign's export supply curve and determine and show the price and quantity of wheat in Foreign in the absence of trade.

C. Now allow them to trade - show and determine the equilibrium price and quantity of wheat trade. What is the world price and what is the volume of trade?

D. Determine the welfare effects of going from autarky to free trade in the 2 countries and show the impact graphically.

Based on the same data for trade in wheat in question 2.

Home imposes a specific tariff of 0.5 on wheat imports.

A. Determine and graph the effects of the tariff on the following:

1) the price of wheat in each country.

2) the quantity of wheat supplied and demanded in each country; and

3) the volume of trade.

B. Determine and show graphically the impact of the tariff on the welfare of each of the following groups:

1)home producers; 2) home consumers; the home government.

C. Show graphically and compute the impact of the tariff on the terms of trade, the efficiency loss, and the total effect on welfare of the tariff.