Demand and supply curves for two large countries are given by figure. Answer the following questions.

1. Consider the autarky situation.

(a) Calculate CS, PS, GS, and TS for both countries.

2. Now, suppose countries open to trade.

(a) Which country imports and which exports?

(b) Derive import demand for importer and export supply for exporter. You can either draw both curves with appropriate labeling and placing numbers or write equations.

(c) Find the new equilibrium price, trade quantity, and consumption as well as production in each country.

(d) Calculate CS, PS, GS, and TS in both countries. Which country gains? How big are the gains?

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