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Consider a 2-region economy. Suppose we have analyzed the autarkic regimes in each, and we have found that the price in Region B (pB) is
Consider a 2-region economy. Suppose we have analyzed the autarkic regimes in each, and we have found that the price in Region B (pB) is less than that in region A (pA). We conclude that with trade A will be the importing region and B will be the exporting region. Suppose we have found ESB = 6.7pB 40 EDA = 54 3.9pA where ES=excess supply and ED=excess demand. Let transport costs be k = 2 per unit shipped. Find the equilibrium prices in the two regions.
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