The following graph shows the same domestic demand and supply curves for tangerines in Guatemala. Suppose that the Guatemalan govemment changes its international trade policy to alloa free trade in tangerines. The horizontal black line (Pw) represents the world price of tangerines at $500 per ton. Assume that Guatemala's entry into the world market for tangerines has no effect on the world price and there are no transportation or transaction costs associated with international trade in tangerines. Also assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. Use the green triangle (triangle symbol) to shade consumer surplus, and then use the purple triangle (diamond symbol) to shade producer surplus. Domestic Demand Domestic Supply 620 590 Consumer Surplus 560 530 500 Producer Surplus 470 440 410 380 350 320 O 25 s0 75 100 125 150 175 200 225 250 QUANTITY (Tons of tangerines) when Guatemala allows free trade of tangerines, the price of a ton of tangerines in Guatemala will be $500. At this price. [ of tangerines will be demanded in Guatemala, and tons tons will be supplied by domestic suppliers. Therefore, Guatemala will export tons of tangerines. Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade. Without Free Trade With Free Trade (Dollars) (Dollars) Consumer Surplus Producer Surplus and producer surplus by 5 So, the net effect of international trade on Guatemala's total surplus is a When Guatemala allows free trade, the country's consumer surplus by s of PRICE (Dollars per ton)
The following graph shows the same domestic demand and supply curves for tangerines in Guatemala. Suppose that the Guatemalan govemment changes its international trade policy to alloa free trade in tangerines. The horizontal black line (Pw) represents the world price of tangerines at $500 per ton. Assume that Guatemala's entry into the world market for tangerines has no effect on the world price and there are no transportation or transaction costs associated with international trade in tangerines. Also assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. Use the green triangle (triangle symbol) to shade consumer surplus, and then use the purple triangle (diamond symbol) to shade producer surplus. Domestic Demand Domestic Supply 620 590 Consumer Surplus 560 530 500 Producer Surplus 470 440 410 380 350 320 O 25 s0 75 100 125 150 175 200 225 250 QUANTITY (Tons of tangerines) when Guatemala allows free trade of tangerines, the price of a ton of tangerines in Guatemala will be $500. At this price. [ of tangerines will be demanded in Guatemala, and tons tons will be supplied by domestic suppliers. Therefore, Guatemala will export tons of tangerines. Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade. Without Free Trade With Free Trade (Dollars) (Dollars) Consumer Surplus Producer Surplus and producer surplus by 5 So, the net effect of international trade on Guatemala's total surplus is a When Guatemala allows free trade, the country's consumer surplus by s of PRICE (Dollars per ton)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The following graph shows the domestic demand and supply curves for tangerines in Guatemala. Suppose that the Guatemalan government changes its international trade policy to allow free trade in tangerines. The horizontal black line (\( P_W \)) represents the world price of tangerines at $500 per ton. Assume that Guatemala's entry into the world market for tangerines has no effect on the world price and there are no transportation or transaction costs associated with international trade in tangerines. Also assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place.
**Use the green triangle (triangle symbol) to shade consumer surplus, and then use the purple triangle (diamond symbol) to shade producer surplus.**
**Graph Description:**
- **Axes:** The vertical axis represents "PRICE (Dollars per ton)" ranging from 300 to 620. The horizontal axis represents "QUANTITY (Tons of tangerines)" ranging from 0 to 250.
- **Curves:**
- "Domestic Demand" is a downward-sloping curve.
- "Domestic Supply" is an upward-sloping curve.
- The horizontal line is labeled \( P_W \), indicating the world price at $500.
**Shaded Areas:**
- **Consumer Surplus:** The area below the demand curve and above the \( P_W \) line (green triangle).
- **Producer Surplus:** The area above the supply curve and below the \( P_W \) line (purple triangle).
When Guatemala allows free trade of tangerines, the price of a ton of tangerines in Guatemala will be $500. At this price, \_\_\_\_ tons of tangerines will be demanded in Guatemala, and \_\_\_\_ tons will be supplied by domestic suppliers. Therefore, Guatemala will export \_\_\_\_ tons of tangerines.
**Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade.**
| | Without Free Trade (Dollars) | With Free Trade (Dollars) |
|-------------------------------|------------------------------|----------------------------|
| Consumer Surplus | \_\_\_\_ | \_\_\_\_ |
| Producer Surplus | \_\_\_\_ | \_\_\_\_ |
When Guatemala allows free trade, the country's consumer surplus \_\_\_\_ by \$\_\_\_\
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