Question

The European Union (EU) and United States (US) demand and supply equations for corn are: QDEU = 70 – 2 PEU QSEU = 20 + 3PEU QDUS = 130 – 3PUS QSUS = 30 + PUS where QD and QS represent the quantities demanded and supplied in both countries (in billions of tons) and P represents the Dollar price per ton of corn in each country. a. Graph the US and European Union supply and demand curves for corn (what are the intercepts?). b. Determine the US and European Union equilibrium prices in the absence of trade. c. Find the surplus (or shortage) in both countries at the price of $ 20.

Answer 1

a) Graphs are provided below

b) EU has a price of $10 and total quantity traded of 50 units. US has a price of $25 and quantity traded at 55 units

c) At a price of 20, EU has QD = 30 units and QS = 80 units so that there is a surplus of 50 units. In US there is a shortage of 20 units.