Country I has the usual demand and supply curves for Murky Way candy bars

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QUESTION:

Country I has the usual demand and supply curves for Murky Way candy bars. Country II has a typical demand curve, too, but it cannot produce Murky Way candy bars.

a. Use supply and demand curves for the domestic markets and for the international market. Show in a set of graphs the free-trade equilibrium for Murky Way candy bars. Indicate the equilibrium world price. How does this world price compare to the no-trade price in Country I? Indicate how many Murky Ways are traded during each time period with free international trade.

b. Show graphically and explain the effects of the shift from no trade to free trade on surpluses in each country. Indicate the net national gain or loss from free trade for each country?


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