Final answer:
Tradability in shadow pricing indicates whether a good or service can be internationally traded. The shadow price is based on world market prices, adjusted for trade costs. Equilibrium price and quantity in the presence of trade are dictated by global market conditions and the country's supply and demand.
Step-by-step explanation:
The concept of tradability in shadow pricing refers to whether goods or services can be traded internationally. The shadow price is the true economic price of a good or service, reflecting its opportunity cost to society, rather than its market price. When determining the shadow price for fully tradable input or output, one typically references world market prices, adjusting for factors like transportation costs and tariffs that affect the cost of trading these goods.
In the context of international trade, the equilibrium price and quantity can be identified by analyzing supply and demand conditions for goods or services. If trade is allowed to occur, the equilibrium price in each country will align with the world market price, as long as there are no barriers to trade. The equilibrium quantity will be where the country's supply and demand curves intersect with this price level.
To illustrate, let's consider a firm that plays trumpets on request, with output measured in the number of songs played. Without trade, the equilibrium would be determined by local supply and demand conditions. With trade, the equilibrium price likely shifts to reflect global supply and demand, potentially leading to different equilibrium quantities for each country.