Suppose Bolivia is open to free trade in the world market for wheat. Because of Bolivia's small size, the demand for and supply of wheat in Bolivia do not affect the world price. The following graph shows the domestic wheat market in Bolivia. The world price of wheat is Pw = $250 per ton. Throughout this problem, assume that changes in trade policies in other nations do not significantly affect the world market for wheat and that there are no transportation or transaction costs associated with international trade in wheat. Also assume that domestic supplies will satisfy domestic demand as much as possible before any exporting or importing takes place. On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer surplus (CS) when the economy is at the free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing domestic producer surplus (PS). PRICE (Dollars per ton) 490 Domestic Demand Domestic Supply 460 430 400 370 340 310 280 250 220 PW 190 + 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of tons of wheat) CS PS If Bolivia allows international trade in the market for wheat, it will import answer, accounting for the horizontal axis units.) tons of wheat. (Note: Be sure to enter the full value for your Now suppose the Bolivian government decides to impose a tariff of $60 on each imported ton of wheat. After the tariff, the domestic price of a ton of wheat will be 5 and Bolivia will import tons of wheat. Show the effects of the $60 tariff on the following graph. Use the grey line (star symbol) to indicate the world price plus the tariff. Then, use the green triangle (triangle symbols) to show the consumer surplus with the tariff and the purple triangle (diamond symbols) to show the domestic producer surplus with the tariff. Lastly, use the orange quadrilateral (square symbols) to shade the area representing government revenue received from the tariff and the tan triangles (dash symbols) to shade the areas representing the net loss or deadweight loss (DWL) caused by the tariff.
Suppose Bolivia is open to free trade in the world market for wheat. Because of Bolivia's small size, the demand for and supply of wheat in Bolivia do not affect the world price. The following graph shows the domestic wheat market in Bolivia. The world price of wheat is Pw = $250 per ton. Throughout this problem, assume that changes in trade policies in other nations do not significantly affect the world market for wheat and that there are no transportation or transaction costs associated with international trade in wheat. Also assume that domestic supplies will satisfy domestic demand as much as possible before any exporting or importing takes place. On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer surplus (CS) when the economy is at the free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing domestic producer surplus (PS). PRICE (Dollars per ton) 490 Domestic Demand Domestic Supply 460 430 400 370 340 310 280 250 220 PW 190 + 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of tons of wheat) CS PS If Bolivia allows international trade in the market for wheat, it will import answer, accounting for the horizontal axis units.) tons of wheat. (Note: Be sure to enter the full value for your Now suppose the Bolivian government decides to impose a tariff of $60 on each imported ton of wheat. After the tariff, the domestic price of a ton of wheat will be 5 and Bolivia will import tons of wheat. Show the effects of the $60 tariff on the following graph. Use the grey line (star symbol) to indicate the world price plus the tariff. Then, use the green triangle (triangle symbols) to show the consumer surplus with the tariff and the purple triangle (diamond symbols) to show the domestic producer surplus with the tariff. Lastly, use the orange quadrilateral (square symbols) to shade the area representing government revenue received from the tariff and the tan triangles (dash symbols) to shade the areas representing the net loss or deadweight loss (DWL) caused by the tariff.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose Bolivia is open to free trade in the world market for wheat. Because of Bolivia's small size, the demand for and supply of wheat in Bolivia do
not affect the world price. The following graph shows the domestic wheat market in Bolivia. The world price of wheat is Pw = $250 per ton.
Throughout this problem, assume that changes in trade policies in other nations do not significantly affect the world market for wheat and that there
are no transportation or transaction costs associated with international trade in wheat. Also assume that domestic supplies will satisfy domestic
demand as much as possible before any exporting or importing takes place.
On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer surplus (CS) when the economy is at the
free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing domestic producer surplus (PS).
PRICE (Dollars per ton)
490
Domestic Demand
Domestic Supply
460
430
400
370
340
310
280
250
220
PW
190
+
0
5
10
15 20 25 30 35 40
45
50
QUANTITY (Thousands of tons of wheat)
CS
PS
If Bolivia allows international trade in the market for wheat, it will import
answer, accounting for the horizontal axis units.)
tons of wheat. (Note: Be sure to enter the full value for your
Now suppose the Bolivian government decides to impose a tariff of $60 on each imported ton of wheat. After the tariff, the domestic price of a ton of
wheat will be 5
and Bolivia will import
tons of wheat.
Show the effects of the $60 tariff on the following graph.
Use the grey line (star symbol) to indicate the world price plus the tariff. Then, use the green triangle (triangle symbols) to show the consumer
surplus with the tariff and the purple triangle (diamond symbols) to show the domestic producer surplus with the tariff. Lastly, use the orange
quadrilateral (square symbols) to shade the area representing government revenue received from the tariff and the tan triangles (dash symbols) to
shade the areas representing the net loss or deadweight loss (DWL) caused by the tariff.
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