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Two countries produce and consume T-shirts: the US and the ROW. Problems 1-2 are based on the supply and demand schedules for the two countries given below. Note: The supply and demand curves are straight lines. Quantities are in millions of T-shirts. US ROW 32 13 28 26 10 20 18 12 12 13 14 15
This problem asks you to characterize the equilibrium under autarky and with trade. a. Draw the supply and demand curves for the US market under autarky (no trade). Note the b. Draw the supply and demand curves for the ROW market under autarky (no trade). Note the c. Suppose that the two countries open to trade. Describe an arbitrage strategy that will allow you equilibrium price and quantity. equilibrium price and quantity to profit from the price differential between the two markets. Be sure to explain how it will work.
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