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Country A ROW P S D .S' D I) I] [3 0 32 1 l3 l2 0 3|] 2 l [I 0 28 3 2

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Country A ROW P S D .S' D I) I] [3 0 32 1 l3 l2 0 3|] 2 l [I 0 28 3 2 [0 G 26 4 3 9 0 24 S 4 8 l 22 6 S 7 2 2|] 2 6 6 3 18 8 T S 4 16 9 8 4 5 14 ll] 9 3 6 12 [1 ll] 2 i" ll] [2 ll l 8 8 l3 l2 0 9 6 l4 [3 II} II] 4 IS [4 0 ll 2 [6 IS 0 l2 0 Two countries produce and consume Tshirts: Country A and the ROW. Problems 45 are based on the supply and demand schedules for the two countries given above. The supply and demand curves are straight lines. Quantities are in millions of Tshirts. This problem asks you to characterize the equilibrium under autarky and with trade. a. Draw the supply and demand curves for Country A's domestic market under autarky (no trade). Note the equilibrium price and quantity. b. Draw the supply and demand curves for the ROW's domestic market under autarky (no trade}. Note the equilibrium price and quantity. c. Suppose that the two countries open to trade. Describe an arbitrage strategy that will allow you to prot from the price difference between the two markets. Be sure to explain how it will work. d. Draw the import demand and export supply lnctions making sure to identify the Pintercepts. Note the equilibrium traded quantity ( imports = exports) and the equilibrium world price. e. How much is produced (supplied) in Country A aer trade is opened? How much is consumed (demanded)? This problem asks you to examine the welfare effects of opening trade between the two countries. Please draw new graphs (separate from question 1). a. Label the area in your graph that represents consumer surplus in Country A before trade. What is the 93 value of consumer surplus? b. Label the area in your graph that represents producer surplus in Country A before trade. What is the $ value of producer surplus? c. Label the area in your graph that represents consumer surplus in Country A after the opening of trade with the ROW. What is the $ value of consumer surplus? d. Label the area in your graph that represents producer surplus in Country A after the opening of trade with the ROW. What is the $ value of producer surplus? e. How much does Country A gain or lose from trade? Country A consumers? Country A producers? Give S values

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