The island nation of Windonia has been installing wind turbines to generate electricity for several years. The topography of the island means that there are few alternatives to using wind to generate electricity and the island is too distant from other countries to obtain electricity from them. Windonia has been installing turbines at a rate of 100 per year. The cost of each turbine, including installation is 5 million Breezes (B). Current government policy permits only domestic firms allowed to sell turbines for installation on the island. No domestic firm would be willing to produce turbines for less than 1 million Breezes per unit.The Breeze is the local currency unit.


Draw a supply demand and curve

Now, suppose Windonia joins the World Trade Organization (WTO), in order to secure market access to world markets for its leading export, locally produced hand-made textiles. One of the stipulations of joining the WTO is that member countries cannot prevent firms in other countries for bidding on wind turbine installation work. Also, suppose that turbines can be obtained from other countries for a price of 3 million Breezes per turbine, installed, and that Windonia is a small country and can purchase as many turbines as it wants at this price.

Draw the new supply and demand curve

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