Flax

Three countries engage in the production of flax (an agricultural product). The market for flax in each country is perfectly competitive. Producers within a country are identical, but they differ across countries. Each producer has a constant marginal cost up to a particular level of capacity. Throughout this analysis, let's assume that there is no transportation cost between the countries.

The following table summarizes supply and demand information across these countries (where quantities are in units per year and prices are in dollars per unit):

Country	Marginal cost	Total flax capacity of country	Market demand curve
Country 1	$250/unit	500 units	D(P) = 1400 - P
Country 2	$300/unit	500 units	D(P) = 1200 - P
Country 3	$200/unit	1200 units	D(P) = 800 - P

b. Suppose countries 1 and 2 form a trade union where they freely trade with each other. The trade union imposes a tariff of $400 per unit on imports from country 3. Since there is free trade between countries 1 and 2, there is a single price for flax in the union. Under this scenario, what is the short-run market equilibrium price in the trade union and quantities of flax consumed in country 1 and 2? What is the short-run market equilibrium price and quantity of flax in country 3? What are consumer and surplus in each country?

(Remember: use only whole numbers, and do not use any other characters or spaces.)

1. Price in the trade union?

2. Quantity consumed in country 1?

3. Quantity consumed in country 2?

4. Price in country 3?

5. Quantity consumed in country 3?

6. Consumer surplus in country 1 with trade union?

7. Producer surplus in country 1 with trade union?

8. Consumer surplus in country 2 with trade union?

9. Producer surplus in country 2 with trade union?

10. Consumer surplus in country 3 with trade union?

11. Producer surplus in country 3 with trade union?