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Answered Same Day Nov 23, 2021

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Rajeswari answered on Nov 24 2021

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International trade assignment
q.no.1 Given that US and Brazil trade in coffee. InBrazil there is no demand for coffee. Hence full supply will be used for US only.
Total supply =
Total demand =
1. Equili
ium is reached when supply = demand
i.e. when
Or P+P = 60-P
3P =60
P =20
Equil. Price = 20$ and equil. Quantity = Demand for price 20
= 40
Graph would be as follows:
Here price is marked on x axis, quantity on vertical axis.
Red line is supply in total and blue is demand in US = total demand.
2. When US imposes a quota for supply from Brazil to 18 units, the demand is unchanged but supply now becomes 18+S_US
Hence we have 18+P = 60-P at equili
ium
Or 2P = 42 or P =21 thus price in equili. Rises to 21 while equi. Quantity is 60-21 = 39
Graph:
3. If quota licences are distributed to American traders, they would use it but try to get a higher profit. Hence now with quote for licence with Americans, they would want to keep a scarcity of supply so that demand will increase the price and so they would get more profit. This would lead to price rise of coffee creating from consumers point of view an additional expenditure for coffee.
Instead if Brazilians were given licences, they would try to charge more so that they may get profit. So they may fix supply = P-k where k is the extra profit they want to get. This again will create a temporary scarcity of supply thus making the prices rise and hence the expenditure would be more.
Quota to US would be better because full profit by price increase they can enjoy. But if licence quota is given to Brazil, the profit portion may go to the suppliers there and also there would be charges such as exchange rate fluctuations, tariff, etc.
Q.no.2

    Workers


    Skilled
    unskilled
    Apparel
    1
    2
    compute
    3
    3



    East
    300 m
    540 m
    West
    60 m
    72 m
We find that each apparel required 1 skilled and 2 unskilled workers.
Available in east are 300 sk. And 540 unsk.
With 300 m skilled and 540 unskilled,
1. We find total skilled reqd = 4x <300 and 5y <540
Or 75 apparels and 54 computers maximum can be produced by East.
For west 4x<=60 and 4y<=72, Or 15 apparels and 18 computers can be produced by west.
Relative supply of apparels in east = 75/54 and in west 15/18.
\
Graph is shown above.
2. Under free trade there will not be any restriction for skilled or unskilled workers. But Relative demand = 49-(Pa/Pc) shows that since RD>0, 0.49Pc>Pa
So relative demand can be any value higher than 0 but in integers.
3....

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