Consider two canola-producing and consuming countries that do not trade internationally, Canada and the US. A supply function for Canadian canola growers has been estimated as ???? = 5 + 3???? and demand function for Canadian consumers as ???? = 50 − 4????. A supply function for US canola growers has been estimated as ???? = 5 + 4???? and a demand function for US consumers as ???? = 55 − 3????.

a) Solve for the equilibrium price and quantity of canola in both markets. Include a diagram and the analytical (math) work in your submission. (4 marks)

b) Now assume that Canada and the US sign a free trade agreement that generates one world market for canola, consisting of Canada and the US. Both countries are considered “large” countries in the world canola market. Derive the excess supply function and the excess demand function for canola in the world market. Express these functions in price-dependent form (e.g. ???? = ???? + ????????). Include a diagram and the analytical (math) work in your submission. (10 marks)

c) Solve for the world canola price and for the quantity of trade between Canada and the US. Include a diagram and the analytical (math) work in your submission. (4 marks)

  

Answer rating: 100% (QA)

a To find the equilibrium price and quantity of canola in both markets we need to equate the supply and demand functions for each country separately For Canada Supply QsCanada 5 3PCanada Demand QdCana... View the full answer