PARTIAL EQUILIBRIUM MODEL

HOME: Demand P = 180-1/3 Q FOREIGN Demand P = 80 - X Q Supply P = XQ Supply P = *Q (3 points) (a) Derive, and depict in a figure, the World Excess Supply and Demand Curves. Be specific about intercepts and slopes. Label fully. (2 points) (b) Determine world prices in free trade. Show your work. Also, check your work. Pw = (5 points) (c) Show (mathematically) that HOME Gains From Trade relative to Autarchy. Recall SS = CS + PS. Be sure to show SS in Autarchy and in FT. Explain the basis for the gains from trade.2 (3 points) (d) Now suppose HOME has a change in SUPPLY (eg Demand P = 1/3 Q). Show the impact on Home's excess demand curve and the impact on world prices. Show your work and provide the intuition. Use the figure above. Pw = (4 points) (e) How does HOME'S change in supply affect HOME Welfare relative to Free Trade? Give the intuition. Eg, discuss CS, PS, and SS in detail. Show your work and provide the intuition. (3 points) (f) How does HOME'S change in supply affect FOREIGN Welfare relative to Free Trade? Show your work and provide the intuition