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Suppose Bangladesh is open to free trade in the world market for oranges. Since Bangladesh is small relative to the international market, the demand for and supply of oranges in Bangladesh have no impact on the world price. The following graph shows the domestic market for oranges in Bangladesh. The world price of a ton of oranges is Pw = $350.

Suppose Bangladesh is open to free trade in the world market for oranges. Since Bangladesh is small relative to the international market, the demand for and supply of oranges in Bangladesh have no impact on the world price. The following graph shows the domestic market for oranges in Bangladesh. The world price of a ton of oranges is Pw = $350.

Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
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ISBN:9781285165912
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: Application: International Trade
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Suppose Bangladesh is open to free trade in the world market for oranges. Since Bangladesh is small relative to the international market, the demand for and supply of oranges in Bangladesh have no impact on the world price. The following graph shows the domestic market for oranges in Bangladesh. 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) 710 670 630 590 550 510 470 430 390 350 310 + 0 Domestic Demand + 15 30 Domestic Supply 45 60 75 90 105 120 135 150 QUANTITY (Tons of oranges) CS Because Bangladesh participates in international trade in the market for oranges, it will import I PS Use the following graph to show the effects of the $40 tariff. Now suppose the Bangladeshi government decides to impose a tariff of $40 on each imported ton of oranges. Under the tariff, the price Bangladeshi consumers pay for a ton of oranges becomes $390 and Bangladesh will import tons of oranges. a tons of oranges.
Transcribed Image Text:Suppose Bangladesh is open to free trade in the world market for oranges. Since Bangladesh is small relative to the international market, the demand for and supply of oranges in Bangladesh have no impact on the world price. The following graph shows the domestic market for oranges in Bangladesh. 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) 710 670 630 590 550 510 470 430 390 350 310 + 0 Domestic Demand + 15 30 Domestic Supply 45 60 75 90 105 120 135 150 QUANTITY (Tons of oranges) CS Because Bangladesh participates in international trade in the market for oranges, it will import I PS Use the following graph to show the effects of the $40 tariff. Now suppose the Bangladeshi government decides to impose a tariff of $40 on each imported ton of oranges. Under the tariff, the price Bangladeshi consumers pay for a ton of oranges becomes $390 and Bangladesh will import tons of oranges. a tons of oranges.
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) 710 670 630 590 550 510 470 430 390 350 310 0 Domestic Demand loss 15 30 45 Consumer Surplus Producer Surplus Government Revenue of QUANTITY (Tons of oranges) Domestic Supply 60 75 90 105 120 135 150 P. 0 $14,400 W World Price Plus Tariff Complete the following table to summarize your results from the previous two graphs. With Free Trade (Dollars) With a Tariff (Dollars) CS PS Government Revenue DWL Based on your analysis, as a result of the tariff, Bangladesh's consumer surplus decreases increases $1,200 and the government collects by I by $19,200, producer surplus $3,600 in revenue. Therefore, the net welfare effect is a
Transcribed Image Text: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) 710 670 630 590 550 510 470 430 390 350 310 0 Domestic Demand loss 15 30 45 Consumer Surplus Producer Surplus Government Revenue of QUANTITY (Tons of oranges) Domestic Supply 60 75 90 105 120 135 150 P. 0 $14,400 W World Price Plus Tariff Complete the following table to summarize your results from the previous two graphs. With Free Trade (Dollars) With a Tariff (Dollars) CS PS Government Revenue DWL Based on your analysis, as a result of the tariff, Bangladesh's consumer surplus decreases increases $1,200 and the government collects by I by $19,200, producer surplus $3,600 in revenue. Therefore, the net welfare effect is a
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