Question: Now add Foreign, which has a demand curve D* = 80 - 20P and a supply curve S* = 40 + 20P. a. Derive and

Now add Foreign, which has a demand curve

D* = 80 - 20P

and a supply curve

S* = 40 + 20P.

a. Derive and graph Foreign's export supply curve and find the price of wheat that

would prevail in Foreign in the absence of trade.

b. Now allow Foreign and Home to trade with each other, at zero transportation cost.

Find and graph the equilibrium under free trade. What is the world price? What is

the volume of trade?

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