# Effects of a Tariff on International TradeThe following graph illustrates the domestic demand for and supply of limes in Bangladesh. The world price ($P_W$) of limes is $800 per ton, shown as a horizontal black line. Throughout the analysis, assume all countries in this context are small, meaning the demand from any single country does not affect the world price of limes. Additionally, there are no transportation or transaction costs involved in the international trade of limes. Domestic suppliers aim to satisfy domestic demand as much as possible before engaging in exporting or importing activities.### Graph DescriptionThe graph features:- **Axes**: The vertical axis represents the price of limes per ton (in dollars), while the horizontal axis represents the quantity (tons of limes).- **Curves**: - **Domestic Demand**: Depicted by a downward-sloping blue line, indicating that demand decreases as price increases. - **Domestic Supply**: Illustrated by an upward-sloping orange line, indicating that supply increases as price increases.- **World Price Line**: A black horizontal line at $800, intersecting both the demand and supply curves.The graph pinpoints specific intersections:- Domestic demand intersects the world price at approximately 360 tons.- Domestic supply intersects the world price at about 120 tons.### Trade Details1. **Unrestricted Imports**: If Bangladesh engages in international trade without restrictions, it will import $ 240 $ tons of limes.2. **Tariff Implementation**: If the Bangladeshi government intends to reduce lime imports to precisely 160 tons to support domestic producers, a tariff of $ \$100 $ per ton would achieve this.3. **Revenue from Tariff**: A tariff at this level would generate $ \$16,000 $ in revenue for the Bangladeshi government.This example illustrates how tariffs can strategically influence domestic markets and government revenue within international trade contexts.

Tariff revenue from import is the product of import quantity and tariff per unit. That is , Tariff revenue = Import × Tariff per unit. World price = 800 At this price , Qd = 360 Qs = 40 Import = Qd - Qs = 360 - 40 = 320 Hence, Import = 320 When import = 160 => Qd - Qs = 160 As per the graph , This is when price is $890 Tariff = 890 - 800 = 90 Hence, A tariff of $90 per ton will achieve this. Tariff revenue = $90 × 160 = $14,400 Hence, Tariff revenue = $14,400 Tariff revenue = $14,400

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4. Effects of a tariff on international trade The following graph shows the domestic demand for and supply of limes in Bangladesh. The world price (Pw) of limes is $800 per ton and is displayed as a horizontal black line. Throughout the question, assume that all countries under consideration are small, that is, the amount demanded by any one country does not affect the world price of limes and that there are no transportation or transaction costs associated with international trade in limes. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. PRICE (Dollars per ton) 1205 1160 1115 1070 1025 980 890 845 800 755 D Domestic Demand 160 200 QUANTITY (Tons of limes) 240 Domestic Supply A tariff set at this level would raise $ 360 P W ? If Bangladesh is open to international trade in limes without any restrictions, it will import Suppose the Bangladeshi government wants to reduce imports to exactly 160 tons of limes to help domestic producers. A tariff of will achieve this. tons of limes. in revenue for the Bangladeshi government. per ton

4. Effects of a tariff on international trade The following graph shows the domestic demand for and supply of limes in Bangladesh. The world price (Pw) of limes is $800 per ton and is displayed as a horizontal black line. Throughout the question, assume that all countries under consideration are small, that is, the amount demanded by any one country does not affect the world price of limes and that there are no transportation or transaction costs associated with international trade in limes. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. PRICE (Dollars per ton) 1205 1160 1115 1070 1025 980 890 845 800 755 D Domestic Demand 160 200 QUANTITY (Tons of limes) 240 Domestic Supply A tariff set at this level would raise $ 360 P W ? If Bangladesh is open to international trade in limes without any restrictions, it will import Suppose the Bangladeshi government wants to reduce imports to exactly 160 tons of limes to help domestic producers. A tariff of will achieve this. tons of limes. in revenue for the Bangladeshi government. per ton

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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