This question will ask you to use the Heckscher-Ohlin model to analyze the effect of trade

Explanation
Please refer to solution in this step.
Answer
Here's the reason. A country that is capital bountiful is one that is exceptional with capital comparative with the other country. This gives the country a penchant for creating the decency that involves somewhat more capital in the creation cycle that is, the capital-serious great. Accordingly, in the event that these two nations were not exchanging at first that is, they were in autarky-the cost of the capital-serious great in the capital-bountiful nation would be offered down (because of its additional stock) comparative with the cost of the positive qualities in the other country. Likewise, in the country that is work bountiful, the cost of the work escalated great would be offered down comparative with the cost of that great in the capital-plentiful country.
QUESTION 2 (20 points)
Assume that all washing machines are identical goods, and that the market is competitive. The
demand for washing machines from users in country A is given by the demand curve


QUESTION 3 (20 points)
a) Suppose domestic demand curve for coffee is as follows D = 105 – 25P; And its supply curve
is S = 25 + 25P
Home country:
Import demand equation is given by:
MD=D - S
=105 - 25P - (25 +25P)
=80 - 50P
In autarky import will be zero that is MD=0
0=80 - 50P
50P=80
P=1.6
Therefore autarky equilibrium is at P=1.6

Above is required import schedule graph.
Foreign country,
1)
Export supply equation is given by
XS=S* - D*
=50 +20P - (90 - 20P)
=40P - 40
At autarky price XS=0
0=40P - 40
40=40P
P=1
Therefore autarky price in foreign is 1.

Above is required foreign supply export graph.
2)
Combining both graphs.

Equilibrium price can be determined at
MD=XS
80 - 50P=40P - 40
120=90P
P=120/90
Pw=1.33
World price will be 1.33
Volume of trade:MD=XS=13.5 at world price of 1.33
c)
A tariff of 1 will lead to increase in price of import demand by 1.
That is P*=P +1
New Import schedule
MD*=80 - 50(P + 1)
MD*=80 - 50P - 50
MD*=30 - 50P
New World price at MD*=XS
30 - 50P=40P - 40
70=90P
P=0.77
P*=0.77 +1
P*=1.77
Therefore new price of coffee in each country will be 1.77
At price of 1.77
In home Country P=1.77
D=105 - 25 x 1.77
D=60.75
S=69.25
In foreign country P=1.33
D*=63.4
S*=76.6
New volume of trade =0 as due to import Tariff price in home country exceed the domestic autarky price of 1.6 that is 1.77 > 1. 6
The effect of tariff is shown in below graph.

Above graph shows the downward shift of MD curve and we can observe that volume of trade has become zero as XS=MD'=0