Temple University

Economics 51 and 52

Two Country Trade: Supply and Demand

In this problem set we visit the country of Rosencrantz and consider the neighboring country of Guildenstern. The two countries are separated by an impassable mountain range. The onion market supply and demand schedules for the two countries are given below:

 

Rosencrantz

Guildenstern

Price

Supply

Demand

Supply

Demand

5

100

10

140

100

4

80

20

120

120

3

60

30

100

130

2

40

40

80

140

1

20

50

60

150

 

Name:  

  1. At a price of 4 what is the quantity demanded in Guildenstern?
     
  2. At a price of 2 what is the quantity supplied in Rosencrantz?
     
  3. What is the equilibrium price in Rosencrantz?
     
  4. What is the equilibrium quantity in Guildenstern?
     
  5. William Shakespeare bores a tunnel through the mountain, thereby providing a costless link between Rosencrantz and Guildenstern. Onions may now be shipped from one country to the other at no cost. At a price of 5 what is the total quantity of onions supplied to the market?
     
  6. What will be the equilibrium price in the new combined market?
     
  7. What will be the quantity of onions consumed in Guildenstern after the tunnel is bored?
     
  8. What will be the quantity of onions produced in Guildenstern after the tunnel is bored? 

Hint: Draw some graphs of supply and demand, one graph for each country. At a price of, say, 4 what is the TOTAL supply of onions?

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Copyright Andrew J. Buck
Last revised: March 26, 2010