Question: Using your findings from Question 2, you should be able to consider the impact of a no-trade-to- free-trade integration between a large and a small
Using your findings from Question 2, you should be able to consider the impact of a no-trade-to- free-trade integration between a large and a small nation, where size is defined by the position of the demand curve (the demand curve in the large nation will be further out than the demand curve for the small nation). To do this, you will need two of the three-panel diagrams of the Figure 6.3 type to show the pre-integration situation. Then use a three-panel diagram of the Figure 6.4 type to show what happens to prices, firm size and the number of firms in the integrated economy. Note that you will want to show both demand curves in the middle panel. As usual, assume that all firms have the same marginal cost. What does this analysis tell you about how integration affects firms in small nations versus large nations?
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