Asked • 05/11/19

The Gains from forming a Free Trade Area or Customs Union Part 1

Suppose Two countries have identical demands for a product. Call it textiles. One is much better at producing Textiles. Suppose Demand is give as P = 40- (1/25) P The Supply Curve for Country A is P= 10 + Q/125 and for Country B it is P=10 +Q/375..

a)     What are the Autarky prices and quantities on Both Counties?

b) show the Graphically.

c) What does Common Market Supply and demand look like (show Graphically)

. d) what is the change in Producer and Consumer Surplus in Country A, Country B.

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