Question

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) How much corn is produced and consumed in the European Union and US? b) How much corn is traded between the two regions? Draw graphs to represent the market situation before and after trade.

Answer 1

A) Before trade US produces 55 tons of corn at a price of $25 and EU produces 10 tons of corn at a price of $25 per ton.

B) Export supply function is X = 20 + 3P - 70 + 2P = 5P - 50. Import demand function M = 130 - 3P - 30 - P = 100 - 4P. Free trade price is

5P - 50 = 100 - 4P

P = 16.67

Xports = Imports = 33.32 tons