For each country, use the previous graph to compute the equalizing price, consumption and production at that price, and the quantity of exports and imports when there are no transportation costs. Enter these amounts into the first two rows of the following table. Equalizing Price Consumption at Equalizing Price Production at Equalizing Price Exports Imports (Dollars) (Cars) (Cars) (Cars) (Cars) Without Transportation Costs Greenberg Borville With Transportation Costs Greenberg Borville

For each country, use the previous graph to compute the equalizing price, consumption and production at that price, and the quantity of exports and imports when there are no transportation costs. Enter these amounts into the first two rows of the following table. Equalizing Price Consumption at Equalizing Price Production at Equalizing Price Exports Imports (Dollars) (Cars) (Cars) (Cars) (Cars) Without Transportation Costs Greenberg Borville With Transportation Costs Greenberg Borville

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

How do I calculate the equalizing pice and consumption?

7. Transportation costs and comparative advantage
The following graph shows a fictional world economy that consists of only two countries, Greenberg and Borville. Both countries produce cars under
increasing-cost conditions. Note that the left-hand part of the diagram is a mirror image of a standard supply-demand diagram, and therefore the
supply and demand curves slope in directions opposite their usual directions.
Borville
Greenberg
30
D.
27
+ 21
+18
15
So
12
9
6.
3
1 2 3 4 5 6 7 8 9 10
10 9 8 7 6 5 4 3 2 1
CARS
24
PRICE OF CARS (Thousands of dollars)

Now suppose both countries open up to international trade with each other.
For each country, use the previous graph to compute the equalizing price, consumption and production at that price, and the quantity of exports and
imports when there are no transportation costs. Enter these amounts into the first two rows of the following table.
Equalizing Price
Consumption at Equalizing Price
Production at Equalizing Price
Exports
Imports
(Dollars)
(Cars)
(Cars)
(Cars)
(Cars)
Without Transportation Costs
Greenberg
Borville
With Transportation Costs
Greenberg
Borville
Now suppose that the per-unit cost of transporting a car between Greenberg and Borville is $6,000.
For each country, use the previous graph to compute the equalizing price, consumption and production at that price, and the quantity of exports and
imports when transportation costs equal $6,000. Enter these amounts into the last two rows of the previous table.
Compare free trade in the absence of transportation costs with the case when transportation costs are included.

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