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International production for goods

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Reference no: EM131843325

This question will measure your ability to understand an economic passage and put it into quantitative work. Hence, please read carefully and try to draw graphs where possible. 

Consider pepper jack cheese and parmesan cheese markets for the US.  The domestic market equilibrium price and quantity for pepper jack is $10 and 100 respectively. On the other hand  The domestic market equilibrium price and quantity for parmesan is $15 and 150respectively. The world price of pepper jack is $12 and world price of parmesan is $10. Assume that the US does not have any power to effect the price level in the world. Assume the US opens up to international production for both of these goods. 

Answer the following 3 questions according to this passage.

1.Which of the following is true? 

A.We don't have enough information to answer this question.

B.US is the exporter of parmesan and importer of pepper jack. 

C.US is the exporter of pepper jack and importer of parmesan.

2.Now assume that quantity supplied for pepper jack is 120 and quantity demanded for pepper jack is 90 under world price. What are the gains from trade for the US in pepper jack market?

A,40

B.10

C.20

D.30

3.Now assume the quantity supplied for parmesan is 1 and quantity demanded is 200 in the US under world price. What are the gains from trade in parmesan market?

A.397.5

B.497.5

C.597.5

D.697.5

Please tell me how the answers come from.

Reference no: EM131843325

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