Consider a country in which the domestic demand curve for wheat is Qd = 24 - p and the domestic supply curve is Qs = p. Now suppose the country can trade wheat in the world market at a price pw = 6 ($/unit).
a) (9 points) Illustrate graphically the equilibrium that arises under free trade. What are the quantities of wheat that would be demanded, produced and imported in this equilibrium?
b) (9 points) Who benefits and who loses from free trade (as compared to no trade all all)? Explain. Illustrate graphically the gains from trade (if any) and then calculate them.
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