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Jun 20, 2024 · In a free market, shortages lead to price increases to reach equilibrium. In a free market, surpluses lead to price decreases to reach equilibrium. Distortion of Price Signals
Mar 19, 2024 · Discuss the impact of international trade on the economic well-being of an exporting country. Who benefits and who loses from free trade? Does the overall gain exceed the losses? Should tariffs be considered in the new trade policy? Justify your answers with economic principles.
- Market Equilibrium
- If Price Is Below The Equilibrium
- If Price Is Above The Equilibrium
Market equilibrium can be shown using supply and demand diagrams In the diagram below, the equilibrium price is P1. The equilibrium quantity is Q1.
In the above diagram, price (P2) is below the equilibrium. At this price, demand would be greater than the supply. Therefore there is a shortage of (Q2 – Q1)If there is a shortage, firms will put up prices and supply more. As price rises, there will be a movement along the demand curve and less will be demanded.Therefore the price will rise to P1 until there is no shortage and supply = demand.If price was at P2, this is above the equilibrium of P1. At the price of P2, then supply (Q2) would be greater than demand (Q1) and therefore there is too much supply. There is a surplus. (Q2-Q1)Therefore firms would reduce price and supply less. This would encourage more demand and therefore the surplus will be eliminated. The new market equilibrium will be at Q3 and P1.Start from Integrated Equilibrium competitive equilibrium that would prevail if both goods and factors were freely traded. Consider Free Trade Equilibrium competitive equilibrium that pre-vails if goods are freely traded, but factors are not.
Jul 17, 2023 · To depict a free trade equilibrium using an export supply and import demand diagram, we must redraw the export supply curve in light of the small country assumption. The assumption implies that the export supply curve is horizontal at the level of the world price.
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Jul 28, 2019 · Explaining how free trade can benefit consumers, firms and the whole global economy. Benefits include competition, greater choice, lower prices, economies of scale and law of comparative advantage.
