Suppose Zambia is open to free trade in the world market for soybeans. Since Zambia is small relative to the international market, the demand for and supply of soybeans in Zambia have no impact on the world price. The following graph shows the domestic market for soybeans in Zambia. The world price of a ton of soybeans is Pw = $250. 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 producer surplus (PS). PRICE (Dollars per ton) 530 Domestic Demand Domestic Supply 490 450 410 370 330 290 250 210 170 P. 130 0 15 30 45 60 75 90 105 120 135 150 QUANTITY (Tons of soybeans) CS 1 1 PS Because Zambia participates in international trade in the market for soybeans, it will import tons of soybeans. Now suppose the Zambian government decides to impose a tariff of $40 on each imported ton of soybeans. Under the tariff, the price Zambian consumers pay for a ton of soybeans becomes S and Zambia will import tons of soybeans. Use the following graph to show the effects of the $40 tariff.

Suppose Zambia is open to free trade in the world market for soybeans. Since Zambia is small relative to the international market, the demand for and supply of soybeans in Zambia have no impact on the world price. The following graph shows the domestic market for soybeans in Zambia. The world price of a ton of soybeans is Pw = $250. 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 producer surplus (PS). PRICE (Dollars per ton) 530 Domestic Demand Domestic Supply 490 450 410 370 330 290 250 210 170 P. 130 0 15 30 45 60 75 90 105 120 135 150 QUANTITY (Tons of soybeans) CS 1 1 PS Because Zambia participates in international trade in the market for soybeans, it will import tons of soybeans. Now suppose the Zambian government decides to impose a tariff of $40 on each imported ton of soybeans. Under the tariff, the price Zambian consumers pay for a ton of soybeans becomes S and Zambia will import tons of soybeans. Use the following graph to show the effects of the $40 tariff.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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