Question

3 Panel Trade Graphs

The answer must be in graphical form, label all axis' of each graph including changes in

equilibrium etc. Note the starting points for both price and quantity for each graph. You

should assume zero costs to transport as a starting point

.

Graph the following:

(5 points) Describe the impact of a bumper crop (a positive shift in supply) in the U.S.

(exporter) on Corn traded with the Rest of World (importer) in a three panel trade

diagram. Ignore any costs of trade. What are the effects on importer and exporter prices

and the quantity traded?

(5 points) Describe the impact of increased ocean freight transportation costs on the

trade in wheat between Canada(exporter) and the Rest of World (importer). What are

the effects on importer and exporter prices and the quantity traded?

Answer 1

A. The Supply curve will shift to left (upward) while there is no change in the demand curve from the rest of world. This will VB result in increase in the price of Soybean for the importer and decrease in the quantity demanded for the exporter..

b)Increased transpotation between canada and world wide has an less impact of the price. Production of that area is not large enough proportion of the total firm product.As a result price does not chnges or changes by a slight amount.

The increase in freight cost will also lead to a reduced supply from canada, the exporter while leaving the demand unchnaged. So same graph as above. It will lead to rising prices in importer cpuntries or the Rest of world and decrease in quantity demanded for Canade the exporter country.