Suppose the US relied entirely on its own resources for nitrogen. Perhaps it would be better if the U.S. allowed for trade in nitrogen. The following two equations show the demand and supply conditions in the United States for nitrogen: Demand: Qd = 30 - 6P Supply: Qs = 4P where Qd is quantity demanded (million metric tons) in the U.S., Qs is quantity supplied in the U.S., and price P is the price of Nitrogen ($/unit). a. If the U.S. relied only on its own resources for nitrogen (i.e., did not trade), what would the equilibrium price of nitrogen be in the U.S. without trade? 

How much nitrogen would be consumed and produced in the U.S.? Show all of this on a graph. b. Now suppose the US engages in free trade with the Rest of the World (ROW). Demand and supply for nitrogen in the ROW is given by: ROW Demand: Qd = 26 - 2P ROW Supply: Qs = 2P With free trade, what would the world equilibrium price be? How much nitrogen does the U.S. produce domestically with free trade? How much does it consume? Is the US an exporter or importer of nitrogen and by

Answer rating: 100% (QA)

a Without trade the equilibrium price of nitrogen in the US can be determined by setting the quantity demanded equal to the quantity supplied Qd Qs 30 ... View the full answer