5. Welfare effects of a tariff in a small country Suppose Kenya is open to free trade in the world market for wheat. Because of Kenya's small size, the demand for and supply of wheat in Kenya do not affect the world price. The following graph shows the domestic wheat market in Kenya. The world price of wheat is Pw-$250 per ton. On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer's surplus (CS) when the economy is at the free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing producers' surplus (PS). PRICE (Dollars per ton) 400 370 340 310 280 0 Domestic Demand 5 Domestic Supply 10 15 20 25 30 35 QUANTITY (Thousands of tons of wheat) 40 50 If Kenya allows international trade in the market for wheat, it will import Show the effects of the $60 tariff on the following graph. 3 9 tons of wheat. Now suppose the Kenyan government decides to impose a tariff of $50 on each imported ton of wheat. After the tariff, the price Kenyan consumers pay for a ton of wheat is , and Kenya will import tons of wheat.

5. Welfare effects of a tariff in a small country Suppose Kenya is open to free trade in the world market for wheat. Because of Kenya's small size, the demand for and supply of wheat in Kenya do not affect the world price. The following graph shows the domestic wheat market in Kenya. The world price of wheat is Pw-$250 per ton. On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer's surplus (CS) when the economy is at the free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing producers' surplus (PS). PRICE (Dollars per ton) 400 370 340 310 280 0 Domestic Demand 5 Domestic Supply 10 15 20 25 30 35 QUANTITY (Thousands of tons of wheat) 40 50 If Kenya allows international trade in the market for wheat, it will import Show the effects of the $60 tariff on the following graph. 3 9 tons of wheat. Now suppose the Kenyan government decides to impose a tariff of $50 on each imported ton of wheat. After the tariff, the price Kenyan consumers pay for a ton of wheat is , and Kenya will import tons of wheat.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. Before the North American Free Trade Agreement (NAFTA) gradually eliminated import tariffs on goods, the autarky price of tomatoes in Mexico was below the world price and in the United States was above the world price. Similarly, the autarky price of poultry in Mexico was above the world price and in the United States was below the world price. Draw diagrams with domestic supply and demand curves for each country and each of the two goods. (You will need to draw four diagrams, total.) As a result of NAFTA, the United States now imports tomatoes from Mexico and the United States now exports poultry to Mexico. How would you expect the following groups to be affected? a. Mexican and U.S. consumers of tomatoes. Illustrate the effect on consumer surplus in your diagram. b. Mexican and U.S. producers of tomatoes. Illustrate the effect on producer surplus in your diagram. c. Mexican and U.S. tomato workers. d. Mexican and U.S. consumers of poultry. Illustrate the effect on consumer surplus…