Question
Assume that there are only two countries in the world: Venezuela and the U.S. Venezuelas demand curve for oil drilling rigs is (all prices are
Assume that there are only two countries in the world: Venezuela and the U.S.
Venezuelas demand curve for oil drilling rigs is (all prices are in millions of U.S. dollars):
Qd = 440 - 20 P
Its supply curve is:
Qs = 120 + 30 P
a) Derive and graph Venezuelas import demand schedule. What would the price of oil drilling rigs in the absence of trade be? (7p)
Now add the U.S., which has a demand curve (all prices are in millions of U.S. dollars):
Qd = 500 - 70 P
and a supply curve:
Qs = 100 + 30 P
b) Derive and graph the U.S. export supply curve, and find the price of oil drilling rigs that would prevail in the U.S. in the absence of trade.(7p)
c) Now allow Venezuela and the U.S. to trade with each other. Find and graph the equilibrium under free trade. What is the world price? What is the volume of trade? (6p)
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