30 Apr Question: Table 1: Supply and Demand for Bushels of Soy bean: Mexico Price ($) …
able 1: Supply and Demand for Bushels of Soy bean: Mexico
| Price ($) | Quantity Supplied | Quantity Demanded |
| 180 | 81 | 0 |
| 160 | 72 | 9 |
| 140 | 63 | 18 |
| 120 | 54 | 27 |
| 100 | 45 | 36 |
| 80 | 36 | 45 |
| 60 | 27 | 54 |
| 40 | 18 | 63 |
| 20 | 9 | 72 |
| 0 | 0 | 81 |
Assume that Brazil and Canada can supply Soy beans to Mexico at a price of $40 and $60, respectively. In the presence of free trade, which nation exports Soy beans Mexico? How many bushels of Soy beans does Mexico produce, consume, and import? [2 points]
(ii) Assume Mexico levies a 100 percent nondiscriminatory tariff on its Soy beans imports. Which nation exports Soy beans to Mexico? How many bushels of Soy beans will Mexico produce, consume, and imports? [2 points]
(iii) Now suppose Mexico forms a customs union with Canada. Determine the trade creation effect and the trade diversion effect of the customs union. What is the customs union’s overall impact on the welfare of Mexico? [8 points]
(iv) Assume instead that Mexico forms a customs union with Brazil. Is this a trade diverting or trade creating customs union? By how much does the customs union increase or decrease the welfare of Mexico? [8 points]
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