Question

Assume two countries, Thailand (T) and Japan (J),

have one good: cameras. The demand (d) and supply (s) for cameras in Thailand and Japan is described by the following functions: QdT

= 60 – P

QsT = –5 + 14 P

QdJ = 80 – P

QsJ = –10 + 12P

P is the price measured in a common currency used in both countries, such as the Thai Baht.

a. Compute the equilibrium price (P) and quantities

(Q) in each country without trade.

b. Now assume that free trade occurs. The free-

trade price goes to 56.36 Baht. Who exports and

imports cameras and in what quantities?

Short answer

The equilibrium price of Thailand is 52.

The equilibrium quantity supply of Thailand is 8.

The equilibrium price of japan is 60.

The equilibrium quantity supply of japan is 20.

Step-by-step solution

Step 1. Concept

Equilibrium refers to the point where,

Quantity demanded = Quantity supplied.

Step 2. Given Equations.

Thailand

Qd = 60$-$p

Qs = $-$5$+$1/4 P

Japan

Qd = 80-P

Qs = -10+1/2 P

(Qd = Quantity demanded

Qs= Quantity supplied)

. Explanation (a)

At equilibrium

Qd=Qs

By taking case of Thailand

60-p = -5+1/4 P...(at equilibrium)

by solving equation

60+5 = 1/4p+p

65=5/4p

65*4=5P

P=52

by putting value P in equation

the equilibrium price of Thailand is 52.

the equilibrium quantity supply of Thailand is 8.

By taking case of Japan

80-P = -10+1/2 P ......(at equilibrium)

By solving equation

80+10= 1p+2p/2

90=3p/2

p=60

by putting value P in equation

The equilibrium price of japan is 60.

The equilibrium quantity supply of japan is 20.

Step 4. Explanation (b)

The free-trade price goes to 56.36 Baht. Aa new price the Quantity supplied changed

For Thailand

we have an equation, for the quantity demanded

Qd= 60-P

by putting the new price value

=60-56.36

=3.64

The new Quantity demanded by the changed price is 3.6

we have an equation, for Quantity Supplied

Qs=-5+1/4P

by putting the value of P

we will get the new Quantity supplied for the changed price is 9.08.

For Japan

we have an equation, for the quantity demanded

Qd = 80-P

by putting the new price value

=80-56.36

=23.64

The new Quantity demanded by the changed price is 23.64

we have an equation, for Quantity Supplied

Qs = -10+1/2 P

by putting the value of P

we will get the new Quantity supplied for the changed price is 18.17.

Japan must import at least five cameras from Thailand (23.64-18.17=5.74).