Consider the market for soybeans in a small country, with the inverse demand given by P = 5.5 – 0.025QD and the inverse supply P = 0.5 + 0.025QS (where P stays for price in € and Q for quantity of soybeans expressed in millions of bushels). a) Determine the domestic market equilibrium under autarky and draw this market outcome in a graph. Remember to label the axes, the curves, and the market equilibrium. b) Suppose now that the country opens to trade and the world market price stays at €2 per bushel. Determine and show in the graph the amount of domestic production, consumption, and imports. c) Suppose the government puts a tariff of €0.25 per bushel on soybean imports. Determine and show in the graph by how much the domestic consumption, production, and trade change due to the tariff. How much fiscal revenue does the government get from the tariff?
6. Consider the market for soybeans in a small country, with the inverse demand given by
P = 5.5 – 0.025QD and the inverse supply P = 0.5 + 0.025QS (where P stays for
and Q for quantity of soybeans expressed in millions of bushels).
a) Determine the domestic
in a graph. Remember to label the axes, the
b) Suppose now that the country opens to trade and the world market price stays at €2 per
bushel. Determine and show in the graph the amount of domestic production, consumption,
and imports.
c) Suppose the government puts a tariff of €0.25 per bushel on soybean imports. Determine
and show in the graph by how much the domestic consumption, production, and trade
change due to the tariff. How much fiscal revenue does the government get from the tariff?
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