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Suppose Burundi is open to free trade in the world market for maize. Because of Burundi's small size, the demand for and supply of maize in Burundi do not affect the world price. The following graph shows the domestic maize market in Burundi. The world price of maize is Pw = $350 per ton. 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) 710 670 630 590 550 510 470 430 390 350 310 Domestic Demand + 0 15 30 Domestic Supply 45 60 75 90 QUANTITY (Tons of maize) Pw 105 120 135 150 If Burundi allows international trade in the market for maize, it will import PS tons of maize. Now suppose the Burundian government decides to impose a tariff of $40 on each imported ton of maize. After the tariff, the price Burundian consumers pay for a ton of maize is and Burundi will import. tons of maize.

Suppose Burundi is open to free trade in the world market for maize. Because of Burundi's small size, the demand for and supply of maize in Burundi do not affect the world price. The following graph shows the domestic maize market in Burundi. The world price of maize is Pw = $350 per ton. 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) 710 670 630 590 550 510 470 430 390 350 310 Domestic Demand + 0 15 30 Domestic Supply 45 60 75 90 QUANTITY (Tons of maize) Pw 105 120 135 150 If Burundi allows international trade in the market for maize, it will import PS tons of maize. Now suppose the Burundian government decides to impose a tariff of $40 on each imported ton of maize. After the tariff, the price Burundian consumers pay for a ton of maize is and Burundi will import. tons of maize.

Essentials of Economics (MindTap Course List)
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 2PA
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Show the effects of the $40 tariff on the following graph. Use the black line (plus symbol) to indicate the world price plus the tariff. Then, use the green points (triangle symbols) to show the consumer surplus with the tariff and the purple triangle (diamond symbols) to show the 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 points (rectangle symbols) to shade the areas representing deadweight loss (DWL) caused by the tariff. PRICE (Dollars per ton) 710 Domestic Demand 670 630 590 550 510 470 430 390 350 310 + 0 15 30 Consumer Surplus Producer Surplus 45 60 75 90 105 QUANTITY (Tons of maize) Domestic Supply Government Revenue 0 PW 120 135 150 World Price Plus Tariff Under a Tariff (Dollars) CS Complete the following table to summarize your results from the previous two graphs. Under Free Trade (Dollars) PS Government Revenue DWL ?
Transcribed Image Text:Show the effects of the $40 tariff on the following graph. Use the black line (plus symbol) to indicate the world price plus the tariff. Then, use the green points (triangle symbols) to show the consumer surplus with the tariff and the purple triangle (diamond symbols) to show the 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 points (rectangle symbols) to shade the areas representing deadweight loss (DWL) caused by the tariff. PRICE (Dollars per ton) 710 Domestic Demand 670 630 590 550 510 470 430 390 350 310 + 0 15 30 Consumer Surplus Producer Surplus 45 60 75 90 105 QUANTITY (Tons of maize) Domestic Supply Government Revenue 0 PW 120 135 150 World Price Plus Tariff Under a Tariff (Dollars) CS Complete the following table to summarize your results from the previous two graphs. Under Free Trade (Dollars) PS Government Revenue DWL ?
3. Welfare effects of a tariff in a small country Suppose Burundi is open to free trade in the world market for maize. Because of Burundi's small size, the demand for and supply of maize in Burundi do not affect the world price. The following graph shows the domestic maize market in Burundi. The world price of maize is Pw = $350 per ton. 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) 710 670 630 590 550 510 470 430 390 350 310 0 Domestic Demand + 15 30 Domestic Supply 45 60 75 90 105 QUANTITY (Tons of maize) PW 120 135 150 If Burundi allows international trade in the market for maize, it will import CS PS tons of maize. Now suppose the Burundian government decides to impose a tariff of $40 on each imported ton of maize. After the tariff, the price Burundian consumers pay for a ton of maize is $ and Burundi will import tons of maize.
Transcribed Image Text:3. Welfare effects of a tariff in a small country Suppose Burundi is open to free trade in the world market for maize. Because of Burundi's small size, the demand for and supply of maize in Burundi do not affect the world price. The following graph shows the domestic maize market in Burundi. The world price of maize is Pw = $350 per ton. 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) 710 670 630 590 550 510 470 430 390 350 310 0 Domestic Demand + 15 30 Domestic Supply 45 60 75 90 105 QUANTITY (Tons of maize) PW 120 135 150 If Burundi allows international trade in the market for maize, it will import CS PS tons of maize. Now suppose the Burundian government decides to impose a tariff of $40 on each imported ton of maize. After the tariff, the price Burundian consumers pay for a ton of maize is $ and Burundi will import tons of maize.
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