question archive Assume that there are only two countries in the world: Turkey and Russia, and that they trade two commodities: Banana (B) and lamb meat (L)
Assume that there are only two countries in the world: Turkey and Russia, and that they trade two commodities: Banana (B) and lamb meat (L)
Subject:EconomicsPrice: Bought3
Assume that there are only two countries in the world: Turkey and Russia, and that they trade two commodities: Banana (B) and lamb meat (L). Their offer curves are given by the following equations (Note: Both commodities are measured in tons)
L= 30B2 + 400B (Russia's offer curve)
L = -20B2 + 1,600B (Turkey's offer curve)
a) Determine the free trade equilibrium international price ratio and each country's exports and imports.
b) Assume that Turkey exports banana and Russia exports lamb meat. New scientific discovery shows that banana cures acne. As a result of those findings the country that imports Banana decides that they would like to import a lot more than before. According to new diagram including the original offer curves in part a) and explain the effects of the change in tastes in the banana -importing nation. Explain the new equilibrium point.
c) What happened to Turkey's terms of trade as a result of this change? What happens to the volume of trade?
