in the United States, the equilibrium price of sugar is 24 cents per pound and the equilibrium quantity is 80

tons. We label these equilibrium points as point E in each part of the figure.

FIGURE 20.2 The Sugar Trade between Brazil and the United States Before trade, the equilibrium price of sugar in

Brazil is 12 cents a pound and it is 24 cents per pound in the United States. When trade is allowed, businesses will

buy cheap sugar in Brazil and sell it in the United States. This will result in higher prices in Brazil and lower prices in

the United States. Ignoring transaction costs, prices should converge to 16 cents per pound, with Brazil exporting 15

tons of sugar and the United States importing 15 tons of sugar. If trade is only partly open between the countries, it

will lead to an outcome between the free-trade and no-trade possibilities.

Price

8

cents

12

cents

14

cents

16

cents

20

cents

24

cents

28

cents

20

30

35

40

45

50

55

Brazil: Quantity
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