Question 2

2.1.Assume that the world consists of only two countries: Australia and Indonesia. Australia's demand curve for A4copy paper and Australia's supply of A4copy paper are

D= 100-20P

S= -20+20P

Indonesia's demand curve for A4copy paper and Indonesia's supply of A4copy paper are:

D*=80-20P

$*=40+20P

where D, S, and P denote demand, supply, and the price in Australian dollars, respectively.

Please answer the following questions:

1. If Australia and Indonesia can freely trade with each other, please graphically show the trade patterns between them?

1. Specifically, which country will be the exporter of A4 copy paper?

1. What is the price of A4 copy paper in free trade?

1. What is the volume of their bilateral trade?
2. marks)

Answer:

(a)

Graph for Australia.

TranscribedText

Price $3 $2 20 20 S D Trade price x 40 60 Quantity