Chapter 8

 

Draw a supply and a demand curve for granola bars, labeling the X-axis "Q" and the Y-axis "P." On the vertical axis denote the equilibrium (autarky) price as "PA." Click here
1.




Graph the following curves by clicking here
a.

Suppose this country is an importer of granola bars. With this in mind, draw a straight horizontal line that represents the international price of granola bars. On the vertical axis, label this new price "PI." Also, on the horizontal axis denote the domestic quantity supplied as "q1" and the domestic quantity demanded as "q2." What distance represents the quantity of this country's imports of granola bars?
b.

Suppose that transportation costs are introduced to this model, and as a result the international price paid by this importing country rises to a new price that is higher than PI but lower than PA. Label this new price "PT."
  c. How does the quantity of imports change? Mark the distance that represents the new quantity of imports on the graph.
d.
Does the introduction of transportation costs affect the validity of the Heckscher-Ohlin theorem? Explain.
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