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

P b
P o
P a
T r
0
Fig. 3.4 -- Equilibrium in the Transport and Product Markets
Qo units flowing from Market A to Market B and the prices in the two
markets equalized at P o .
However, if transport costs are not zero, how can we ascertain how
much, if any, of the product will flow from Market A to Market B? Sup-
pose that the transport cost of a unit is equal to T o , which is equal
to the difference between the isolation price in Market B, P b' and the
isolation price in Market A, P. Then, a unit of A's product delivered
in B will cost a buyer in B the supply price of the product in A plus
the transport cost from A to B, T o . Now, in the derivation of the
excess supply curve for Market A we saw that for product prices up to
P a domestic demand was sufficient to dispose of the domestic supply
in Market A. Hence, only to sell quantities greater than Q a need the
producers look for outside markets. However, these producers will only
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