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Recalculate the free trade equilibrium |Microeconomics
Suppose that Foreign had been a much larger country, with domestic demand
D* = 800 – 200P, S* = 400 + 200P.
(Notice that this implies that the Foreign price of wheat in the absence of trade would have been the same as in problem 2.)
Recalculate the free trade equilibrium and the effects of a 0.5 speci?c tariff by Home. Relate the difference in results to the discussion of the small country case in the text.
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