Question
This question is about India, a cotton-producing country that also imports a lot of cotton to feed its growing textiles and apparel output which is
This question is about India, a cotton-producing country that also imports a lot of cotton to feed its growing textiles and apparel output which is exported globally. The prevailing world price of cotton is $1 per pound, multiple dollars lower than the price that would prevail in India if the country didnt import cotton and relied instead entirely on its own domestic cotton output (the autarky price).
1. First, lets simply draw graphs of the scenarios below that show qualitatively whats going on. The graphs need not be to scale but should be labelled appropriately. (a) Show the Indian cotton market in autarky, illustrating where Indias domestic cotton price would be relative to the prevailing world price, and the equilibrium amount of cotton that would be grown and used in India. Illustrate consumer and producer surplus on the graph. Remember, CS is the area above the price up to the demand curvea measure of the value buyers of the product receiveand PS is the area below the price down to the supply curvea measure of the value producers of the product receive.
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