bottom half When Venezuela allows free trade of soybeans, the price of a ton of soybeans in Venezuela will be $350. At this price, tons of soybeans will be demanded in Venezuela, and tons will be supplied by domestic suppliers. Therefore, Venezuela will export tons of soybeans. Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade. Without Free Trade With Free Trade (Dollars) (Dollars) Consumer Surplus Producer Surplus When Venezuela allows free trade, the country's consumer surplus decrease or increase by , and producer surplus decrease or increase by . So, the net effect of international trade on Venezuela's total surplus is a loss or gain of
bottom half When Venezuela allows free trade of soybeans, the price of a ton of soybeans in Venezuela will be $350. At this price, tons of soybeans will be demanded in Venezuela, and tons will be supplied by domestic suppliers. Therefore, Venezuela will export tons of soybeans. Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade. Without Free Trade With Free Trade (Dollars) (Dollars) Consumer Surplus Producer Surplus When Venezuela allows free trade, the country's consumer surplus decrease or increase by , and producer surplus decrease or increase by . So, the net effect of international trade on Venezuela's total surplus is a loss or gain of
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
bottom half
When Venezuela allows free trade of soybeans, the price of a ton of soybeans in Venezuela will be $350. At this price,
tons of soybeans will be demanded in Venezuela, and
tons will be supplied by domestic suppliers. Therefore, Venezuela will export
tons of soybeans.
Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade.
|
|
Without Free Trade
|
With Free Trade
|
|---|---|---|
|
(Dollars)
|
(Dollars)
|
|
|
|
|
|
|
|
|
When Venezuela allows free trade, the country's consumer surplus
decrease or increase by
, and producer surplus decrease or increase by
. So, the net effect of international trade on Venezuela's total surplus is a loss or gain of
.
Transcribed Image Text:Based on the previous graph, total surplus in the absence of international trade is $
The following graph shows the same domestic demand and supply curves for soybeans in Venezuela. Suppose that the Venezuelan government
changes its international trade policy to allow free trade in soybeans. The horizontal black line (Pw) represents the world price of soybeans at $350
per ton. Assume that Venezuela's entry into the world market for soybeans has no effect on the world price and there are no transportation or
transaction costs associated with international trade in soybeans. Also assume that domestic suppliers will satisfy domestic demand as much as
possible before any exporting or importing takes place.
Use the green triangle (triangle symbol) to shade consumer surplus, and then use the purple triangle (diamond symbol) to shade producer surplus.
(?
450
Domestic Demand
Domestic Supply
425
Consumer Surplus
400
375
350
Producer Surplus
P..
300
275
250
225
200
10
20
30
40
50
60
70
80
90
100
QUANTITY (Tons of soybeans)
When Venezuela allows free trade of soybeans, the price of a ton of soybeans in Venezuela will be $350. At this price,
|tons of
PRICE (Dollars per ton)
Transcribed Image Text:1. Welfare effects of free trade in an exporting country
Consider the Venezuelan market for soybeans.
The following graph shows the domestic demand and domestic supply curves for soybeans in Venezuela. Suppose Venezuela's government currently
does not allow international trade in soybeans.
Use the black point (plus symbol) to indicate the equilibrium price of a ton of soybeans and the equilibrium quantity of soybeans in Venezuela in the
absence of international trade. Then, use the green triangle (triangle symbol) to shade the area representing consumer surplus in equilibrium. Finally,
use the purple triangle (diamond symbol) to shade the area representing producer surplus in equilibrium.
Domestic Demand
Domestic Supply
450
425
Equilibrium without Trade
400
375
350
Consumer Surplus
325
300
Producer Surplus
275
250
225
200
10
20
30
40
50
60
70
80
90
100
QUANTITY (Tons of soybeans)
PRICE (Dollars per ton)
Expert Solution
Step 1
Producer surplus refer to the difference between the minimum acceptance price of the producer and actually received price for the goods and services.
Consumer surplus refer to the difference between the maximum willing to accept price and actually paid for the goods and services.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 7 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education