question archive US and Canada are two large countries in a cotton market
Subject:EconomicsPrice:2.86 Bought8
US and Canada are two large countries in a cotton market. Assume that demand and supply curves are linear in both countries. With free trade the US exports 50 bales of cotton to Canada at a price of $400/bale. Under pressure from cotton farmers, US introduces an export subsidy of $80/bale. As a result, exports rise by 20 bales and the world price of cotton falls to $360/bale.
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