3. Welfare effects of a tariff in a small country Suppose Bangladesh is open to free trade in the world market for oranges. Since Bangladesh is small relative to the international market, the demand for and supply of oranges in Bangladesh have no impact on the world price. The following graph shows the domestic market for oranges in Bangladesh. The world price of a ton of oranges is Pw - $350. On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer surplus (CS) when the economy is at the free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing producer surplus (PS). PRICE (Dollars per ton) 710 Domestic Demand Domestic Supply 670 030 500 550 510 470 430 390 350 310 a 15 30 45 60 75 90 105 120 135 150 QUANTITY (Tons of oranges) PS
3. Welfare effects of a tariff in a small country Suppose Bangladesh is open to free trade in the world market for oranges. Since Bangladesh is small relative to the international market, the demand for and supply of oranges in Bangladesh have no impact on the world price. The following graph shows the domestic market for oranges in Bangladesh. The world price of a ton of oranges is Pw - $350. On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer surplus (CS) when the economy is at the free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing producer surplus (PS). PRICE (Dollars per ton) 710 Domestic Demand Domestic Supply 670 030 500 550 510 470 430 390 350 310 a 15 30 45 60 75 90 105 120 135 150 QUANTITY (Tons of oranges) PS
Chapter1: Making Economics Decisions
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Transcribed Image Text:3. Welfare effects of a tariff in a small country
Suppose Bangladesh is open to free trade in the world market for oranges. Since Bangladesh is small relative to the international market, the demand
for and supply of oranges in Bangladesh have no impact on the world price. The following graph shows the domestic market for oranges in
Bangladesh. The world price of a ton of oranges is Pw - $350.
On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer surplus (CS) when the economy is at the
free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing producer surplus (PS).
PRICE (Dollars per ton)
710
Domestic Demand
Domestic Supply
670
030
500
550
510
470
430
390
350
310
a
15
30
45 60 75 90 105 120
135
150
QUANTITY (Tons of oranges)
PS
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