Basic Tariff analysis Supply, Demand, and Trade in a Single Industry Suppose that there are two countries(Home and foreign). Both countries consume and produce wheat, which can be costless transported between the countries. In each country, wheat is a competitive industry. Suppose that in the absence of trade the price of wheat at Home exceeds the corresponding price at foreign This implies that shippers begin to move wheat from Foreign to Home The export of wheat raises its price in Foreign and lowers its price in Home until the initial difierence in prices has been eliminated. Copyright C 2003 Pearson Education, Inc Slide 8-8Copyright © 2003 Pearson Education, Inc. Slide 8-8 ▪ Supply, Demand, and Trade in a Single Industry • Suppose that there are two countries (Home and Foreign). • Both countries consume and produce wheat, which can be costless transported between the countries. • In each country, wheat is a competitive industry. • Suppose that in the absence of trade the price of wheat at Home exceeds the corresponding price at Foreign. – This implies that shippers begin to move wheat from Foreign to Home. – The export of wheat raises its price in Foreign and lowers its price in Home until the initial difference in prices has been eliminated. Basic Tariff Analysis