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Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

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the market price in A it is obvious that.ifrrade between the markets<br />

were allowed any movement of the commodity which occurred would be from<br />

Market A to Market B. Consequently we shall designate Market A as the<br />

•exporting region and Market B as the importinvregion. • ..<br />

Figure 3.2 shows the demand in Market'B <strong>for</strong> the importation of - •<br />

the product from Market A, Market B's excess demand curve. As be<strong>for</strong>e, 1<br />

P b and Q b are the equilibrium price and quantity under conditions of.<br />

isolation. At prices above P b local supply is in excess of local demand.<br />

Hence excess demand is. undefined above this price. At price P b local -<br />

deMand.and . supply are equal and excess demand is zero, as at point X. :<br />

For prices below P b' but above P e , local demand exceeds local supply •<br />

•<br />

and excess demand is positive and is given by the line segment W. At<br />

prices below P e the local supply is non-existent and the original<br />

Qb •<br />

Fig..3.2'•- , Derivation of the Excess Demand•Curve<br />

38

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