Consider Figure 2.3, which shows free trade in motorbikes. Assume that consumers in the United States shift their tastes in favor of motorbikes. What is the effect on the U.S. domestic demand and/or supply curve(s)? What is the effect on the U.S. demandfor-

imports curve? What is the effect on the equilibrium international price?

Data From Figure 2.3

Transcribed Image Text:

Motorbike Market FIGURE 2.3 The Effects of Trade on Production, Consumption, and Price, Shown with Demand and Supply Curves A. The U.S. C. The Rest of the World's Motorbike Market B. International Motorbike Market Price ($/unit) Price ($/unit) Price ($/unit) Sus 2,000 2,000 U.S. pretrade price World price with trade- B 1,000 Imports Dus 1,000 700 m Exports St 1,000 700 H D+ 15 40 65 Quantity (thousands) Sus = U.S. supply Dus U.S. demand 50 Dm Quantity (thousands) Sx = Rest-of-world supply of exports (Sx = S- D) Dm U.S. demand for imports (Dm = Dus - Sus) 25 50 75 Quantity (thousands) S+= Rest of world's supply D+= Rest of world's demand