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Nobody grows or squeezes more oranges than Brazil, where orange trees now outnumber people and 400,000 workers rely on oranges for their livelihoods. Since most people in Brazil are not in the habit of drinking orange juice, all but 1 percent of the juice is exported. Much goes to the United States, where Americans are the globe's biggest consumers of orange juice, drinking 80 million glasses every day. In a world of open borders, this pairing of abundant supply and growing demand should come close to free-trade nirvana. But Washington has imposed heavy tariffs on orange juice from Brazil since 1987....which adds about 30 cents to the price of a gallon of juice in American supermarkets." (New York Times) In the questions that follow, suppose that the domestic supply of orange juice in the United States is given by Qs = 2P, and that the American demand for orange juice is QD = (14/3) - (10/3)P where P is the price of orange juice in dollars per gallon and Q is the quantity (in billions of gallons per year). Also assume, for the purposes of this question, that Brazil is the only source of orange juice imports for the US. a. In the absence of imports, what is the price of orange juice in the United States, and how much will be consumed? b. Assume that Brazil is the sole exporter of orange juice in the world, and that Brazil's production of orange juice is very large compared to the size of the US market, so that Brazilian suppliers can supply as much quantity as needed by US consumers at the prevailing Brazilian price. Now suppose that prior to the tariff, the price of Brazilian orange juice is $0.50 per gallon. How much orange juice will be imported from Brazil, and how much orange juice is produced by US orange growers?

Nobody grows or squeezes more oranges than Brazil, where orange trees now outnumber people and 400,000 workers rely on oranges for their livelihoods. Since most people in Brazil are not in the habit of drinking orange juice, all but 1 percent of the juice is exported. Much goes to the United States, where Americans are the globe's biggest consumers of orange juice, drinking 80 million glasses every day. In a world of open borders, this pairing of abundant supply and growing demand should come close to free-trade nirvana. But Washington has imposed heavy tariffs on orange juice from Brazil since 1987....which adds about 30 cents to the price of a gallon of juice in American supermarkets." (New York Times) In the questions that follow, suppose that the domestic supply of orange juice in the United States is given by Qs = 2P, and that the American demand for orange juice is QD = (14/3) - (10/3)P where P is the price of orange juice in dollars per gallon and Q is the quantity (in billions of gallons per year). Also assume, for the purposes of this question, that Brazil is the only source of orange juice imports for the US. a. In the absence of imports, what is the price of orange juice in the United States, and how much will be consumed? b. Assume that Brazil is the sole exporter of orange juice in the world, and that Brazil's production of orange juice is very large compared to the size of the US market, so that Brazilian suppliers can supply as much quantity as needed by US consumers at the prevailing Brazilian price. Now suppose that prior to the tariff, the price of Brazilian orange juice is $0.50 per gallon. How much orange juice will be imported from Brazil, and how much orange juice is produced by US orange growers?

Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781305971509
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: Application: International Trade
Section: Chapter Questions
Problem 2CQQ
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Nobody grows or squeezes more oranges than Brazil, where orange trees now outnumber people and 400,000 workers rely on oranges for their livelihoods. Since most people in Brazil are not in the habit of drinking orange juice, all but 1 percent of the juice is exported. Much goes to the United States, where Americans are the globe's biggest consumers of orange juice, drinking 80 million glasses every day. In a world of open borders, this pairing of abundant supply and growing demand should come close to free-trade nirvana. But Washington has imposed heavy tariffs on orange juice from Brazil since 1987....which adds about 30 cents to the price of a gallon of juice in American supermarkets." (New York Times) In the questions that follow, suppose that the domestic supply of orange juice in the United States is given by Qs = 2P, and that the American demand for orange juice is QD - (14/3)-(10/3)P where P is the price of orange juice in dollars per gallon and Q is the quantity (in billions of gallons per year). Also assume, for the purposes of this question, that Brazil is the only source of orange juice imports for the US. a. In the absence of imports, what is the price of orange juice in the United States, and how much will be consumed? b. Assume that Brazil is the sole exporter of orange juice in the world, and that Brazil's production of orange juice is very large compared to the size of the US market, so that Brazilian suppliers can supply as much quantity as needed by US consumers at the prevailing Brazilian price. Now suppose that prior to the tariff, the price of Brazilian orange juice is $0.50 per gallon. How much orange juice will be imported from Brazil, and how much orange juice is produced by US orange growers?
Transcribed Image Text:Nobody grows or squeezes more oranges than Brazil, where orange trees now outnumber people and 400,000 workers rely on oranges for their livelihoods. Since most people in Brazil are not in the habit of drinking orange juice, all but 1 percent of the juice is exported. Much goes to the United States, where Americans are the globe's biggest consumers of orange juice, drinking 80 million glasses every day. In a world of open borders, this pairing of abundant supply and growing demand should come close to free-trade nirvana. But Washington has imposed heavy tariffs on orange juice from Brazil since 1987....which adds about 30 cents to the price of a gallon of juice in American supermarkets." (New York Times) In the questions that follow, suppose that the domestic supply of orange juice in the United States is given by Qs = 2P, and that the American demand for orange juice is QD - (14/3)-(10/3)P where P is the price of orange juice in dollars per gallon and Q is the quantity (in billions of gallons per year). Also assume, for the purposes of this question, that Brazil is the only source of orange juice imports for the US. a. In the absence of imports, what is the price of orange juice in the United States, and how much will be consumed? b. Assume that Brazil is the sole exporter of orange juice in the world, and that Brazil's production of orange juice is very large compared to the size of the US market, so that Brazilian suppliers can supply as much quantity as needed by US consumers at the prevailing Brazilian price. Now suppose that prior to the tariff, the price of Brazilian orange juice is $0.50 per gallon. How much orange juice will be imported from Brazil, and how much orange juice is produced by US orange growers?
d. Suppose that the United States places a tariff of $0.30 per gallon on imports that raises the price of orange juice imported from Brazil to $0.80. Relative to the free-trade equilibrium, what is the increase in domestic producer surplus, how much revenue does this tariff raise for the government, and what is the social cost (or the "deadweight loss") of the tariff? Please illustrate your answer graphically. Would the increase in producer surplus, the government tariff revenue, and deadweight loss be greater or smaller if US demand for orange juice (measured at the free trade outcome) was more inelastic? Explain and illustrate graphically, assuming the demand curve is linear (use the back of the page for the graph if needed).
Transcribed Image Text:d. Suppose that the United States places a tariff of $0.30 per gallon on imports that raises the price of orange juice imported from Brazil to $0.80. Relative to the free-trade equilibrium, what is the increase in domestic producer surplus, how much revenue does this tariff raise for the government, and what is the social cost (or the "deadweight loss") of the tariff? Please illustrate your answer graphically. Would the increase in producer surplus, the government tariff revenue, and deadweight loss be greater or smaller if US demand for orange juice (measured at the free trade outcome) was more inelastic? Explain and illustrate graphically, assuming the demand curve is linear (use the back of the page for the graph if needed).
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