2. Welfare effects of a tariff in a small country Suppose Guatemala is open to free trade in the world market for oranges. Since Guatemala is small relative to the international market, the demand for and supply of oranges in Guatemala have no impact on the world price. The following graph shows the domestic market for oranges in Guatemala. The world price of a ton of oranges is Pw = $350. 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) 710 Domestic Demand Domestic Supply 670 630 590 550 510 470 430 28 8 8 8 8 8 8 8 390 350 P. 310 0 15 30 45 60 75 90 105 120 135 150 QUANTITY (Tons of oranges) CS PS Because Guatemala participates in international trade in the market for oranges, it will import tons of oranges. Now suppose the Guatemalan government decides to impose a tariff of $40 on each imported ton of oranges. Under the tariff, the price Guatemalan consumers pay for a ton of oranges becomes S and Guatemala will import Use the following graph to show the effects of the $40 tariff. tons of oranges.
2. Welfare effects of a tariff in a small country Suppose Guatemala is open to free trade in the world market for oranges. Since Guatemala is small relative to the international market, the demand for and supply of oranges in Guatemala have no impact on the world price. The following graph shows the domestic market for oranges in Guatemala. The world price of a ton of oranges is Pw = $350. 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) 710 Domestic Demand Domestic Supply 670 630 590 550 510 470 430 28 8 8 8 8 8 8 8 390 350 P. 310 0 15 30 45 60 75 90 105 120 135 150 QUANTITY (Tons of oranges) CS PS Because Guatemala participates in international trade in the market for oranges, it will import tons of oranges. Now suppose the Guatemalan government decides to impose a tariff of $40 on each imported ton of oranges. Under the tariff, the price Guatemalan consumers pay for a ton of oranges becomes S and Guatemala will import Use the following graph to show the effects of the $40 tariff. tons of oranges.
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: Application: International Trade
Section: Chapter Questions
Problem 3PA
Related questions
Question
Transcribed Image Text:2. Welfare effects of a tariff in a small country
Suppose Guatemala is open to free trade in the world market for oranges. Since Guatemala is small relative to the international market, the demand
for and supply of oranges in Guatemala have no impact on the world price. The following graph shows the domestic market for oranges in Guatemala.
The world price of a ton of oranges is Pw = $350.
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)
710 Domestic Demand
Domestic Supply
670
630
590
550
510
470
430
28 8 8 8 8 8 8 8
390
350
P.
310
0
15
30
45
60 75 90
105 120 135
150
QUANTITY (Tons of oranges)
CS
PS
Because Guatemala participates in international trade in the market for oranges, it will import
tons of oranges.
Now suppose the Guatemalan government decides to impose a tariff of $40 on each imported ton of oranges. Under the tariff, the price Guatemalan
consumers pay for a ton of oranges becomes S
and Guatemala will import
Use the following graph to show the effects of the $40 tariff.
tons of oranges.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
Recommended textbooks for you
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
Principles of Macroeconomics (MindTap Course List)
Economics
ISBN:
9781285165912
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
Principles of Macroeconomics (MindTap Course List)
Economics
ISBN:
9781285165912
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics, 7th Edition (MindTap Cou…
Economics
ISBN:
9781285165875
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Microeconomics (MindTap Course List)
Economics
ISBN:
9781305971493
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning