Question

The European Union (EU) and United States (US) demand and supply equations for corn are: QDEU = 70 – 2 PEU QSEU = 20+3 PEU QDUS = 130 – 3 PUS 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. Now assume that there is free trade between the European Union and US. d. Determine the international equilibrium price of corn (per ton). e. How much corn is produced and consumed in the European Union and US. f. How much corn is traded between the two regions. Draw graphs to represent the market situation before and after trade. Suppose now that the European Union limits its imports of corn to 14 billions of tons. g. What will be the new equilibrium prices of corn in the European Union and US? h. What are the new domestic production and consumption levels in each region? How much corn is traded?

Need e-h

Answer 1

b. The Equilibrium prices in absence of trade in EU and US are $10 and $25 respectively.

c. At $20, the surplus in EU:

Supply-Demand = 20+60-70+40= 50 tons

The shortage in US:

Demand –Supply= 130-60-30-20= 20 tons

d. The equilibrium international price will be determined by the relative bargaining power of both the regions and will range between $10 and $25.