If Bangladesh is open to international trade in oranges without any restrictions, it will import Suppose the Bangladeshi government wants to reduce imports to exactly 20 tons of oranges to help domestic producers. A tariff of S will achieve this. A tariff set at this level would raise 80 tons of oranges. in revenue for the Bangladeshi government. per ton
If Bangladesh is open to international trade in oranges without any restrictions, it will import Suppose the Bangladeshi government wants to reduce imports to exactly 20 tons of oranges to help domestic producers. A tariff of S will achieve this. A tariff set at this level would raise 80 tons of oranges. in revenue for the Bangladeshi government. per ton
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:## Effects of a Tariff on International Trade
This section explores the domestic supply and demand for oranges in Bangladesh using the accompanying graph. The world price (Pw) of oranges is fixed at $780 per ton, depicted by the horizontal black line. The exercise assumes that the demand from any single country does not impact the global price of oranges and ignores any transportation or transaction costs involved in international trade. It's also assumed that domestic suppliers meet domestic demand as much as possible before any international trade occurs.
### Graph Description
- **Axes**:
- The vertical axis represents the price in dollars per ton.
- The horizontal axis shows the quantity in tons of oranges.
- **Curves**:
- The **Domestic Demand** curve slopes downward from left to right, indicating that as the price decreases, the quantity demanded increases.
- The **Domestic Supply** curve slopes upward from left to right, demonstrating that as the price increases, the quantity supplied increases.
- **World Price Line**:
- A horizontal line at the price level of $780.
### Analysis
If Bangladesh engages in unrestricted international trade of oranges, it will import **80** tons of oranges. If the government aims to reduce imports to **20** tons to support local producers, a certain tariff per ton can achieve this reduction.
### Revenue Calculation
The government can impose a tariff to curb imports. Once determined, this tariff will generate revenue, and the specific amount per ton should be plugged into the appropriate section to ascertain total government revenue from such a policy.
Expert Solution
Step 1
Imports are the difference between domestic demand and domestic supply.
In the graph, at the world price, domestically supplied quantity is 10 whereas domestically demanded quantity is 90.
As you can see in the graph the difference between domestically demanded oranges and domestically supplied oranges is 80 tons (90-10).
Hence, without restrictions, it will import 80 tons of oranges.
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