International Economics 13th Edition by Robert Carbaugh

Exercise 6

Table 3.8 illustrates the supply and demand schedules for calculators in Sweden and Norway. On graph paper, draw the supply and demand schedules of each country.
a. In the absence of trade, what are the equilibrium price and quantity of calculators produced in Sweden and Norway? Which country has the comparative advantage in calculators?
b. Assume there are no transportation costs. With trade, what price brings about balance are traded at this price? How many calculators are produced and consumed in each country with trade?
c. Suppose the cost of transporting each calculator from Sweden to Norway is $5. With trade, what is the impact of the transportation cost on the price of calculators in Sweden and Norway? How many calculators will each country produce, consume, and trade?
d. In general, what can be concluded about the impact of transportation costs on the price of the traded product in each trading nation? The extent of specialization? The volume of trade?