Suppose the domestic supply (Q^S_U.S.) and demand (Q^D_U.S)for bicycles in the United States are given by the following set of equations: $$\begin{array} { l } Q ^ { \mathrm { S } } \mathrm { U.S } . = 2 \mathrm { P } \ \mathrm { Q } _ { ^\mathrm { D } U . S } = 200 - 2 \mathrm { P } . \end{array}$$ Demand (Q^D) and supply (Q^S) in the Rest of the World are given by the equations: $$\begin{array} { l } Q ^ { S } = P \ Q ^ { D } = 160 - P . \end{array}$$ Quantities are measured in thousands and price in U.S. dollars. After the opening of free trade with the United States, if the world price of the bicycles settles at $60, the Rest of the World will: A)export 40,000 bicycles. B)export 60,000 bicycles. C)import 60,000 bicycles. D)import 40,000 bicycles.

Question

Quizplus · Accepted Answer

To determine the trade outcome for the Rest of the World at a world price of $60, we calculate the supply and demand in the Rest of the World at this price. Supply: $Q^S = P = 60$. Demand: $Q^D = 160 - P = 160 - 60 = 100$. Since demand (100,000 bicycles) exceeds supply (60,000 bicycles), the Rest of the World will import the difference, which is 40,000 bicycles.

Suppose the Domestic Supply (QSU Demand (QD) and Supply (QS) in the Rest of the the United

Suppose the Domestic Supply (Q^S_{U Demand (Q^D) and Supply (Q^S) in the Rest of the the United}