Question 1. A new product that is produced and consumed only in the USA and France is about to be launched. In the USA, the following demand and supply curves are appropriate:
QDU = 100 - 2PU
QSU = 5 + 2.6PU
Also suppose that a French producer is simultaneously ready to enter the USA and French markets with the following demand and supply functions (stated in USA prices):
QDF = 120 - 6.4PU
QSF = 5 + 3.2PU
a) What would be the pre-trade values of price and quantity in the USA? In France(in dollar terms)?
b) If the countries decided to trade, how would you find world demand and world supply?
c) In the absence of governmental intervention, what would be the amount produced in the USA? In France?
d) What is the amount consumed in both countries after trade commences? What would be the price (assume zero transportation costs)?
e) Who is better off and who is worse off?
Question 2. Suppose that the USA imposes a quota of 3 million units per month from France.
a) What would be the effect of this policy on the price in the USA?
b) Who is better off and who is worse off?