The following graph shows the same domestic demand and supply curves for lemons in Bolivia. Suppose that the Bolivian government changes its international trade policy to allow free trade in lemons. The horizontal black line (PWPW) represents the world price of lemons at $800 per tonne. Assume that Bolivia's entry into the world market for lemons has no effect on the world price and there are no transportation or transaction costs associated with international trade in lemons. Also assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. Use the green point (triangle symbol) to shade consumer surplus, and then use the purple point (diamond symbol) to shade producer surplus When Bolivia allows free trade of lemons, the price of a tonne of lemons in Bolivia will be $800.

The following graph shows the same domestic demand and supply curves for lemons in Bolivia. Suppose that the Bolivian government changes its international trade policy to allow free trade in lemons. The horizontal black line (PWPW) represents the world price of lemons at $800 per tonne. Assume that Bolivia's entry into the world market for lemons has no effect on the world price and there are no transportation or transaction costs associated with international trade in lemons. Also assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. Use the green point (triangle symbol) to shade consumer surplus, and then use the purple point (diamond symbol) to shade producer surplus When Bolivia allows free trade of lemons, the price of a tonne of lemons in Bolivia will be $800.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter3: Market Demand And Supply

Section3.A: Consumer Surplus, Proudcer Suplus, And Market Efficency

Problem 5SQ

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1. Welfare effects of free trade in an exporting country

Use the green point (triangle symbol) to shade consumer surplus, and then use the purple point (diamond symbol) to shade producer surplus

When Bolivia allows free trade of lemons, the price of a tonne of lemons in Bolivia will be $800.

1100
Domestic Demand
Domestic Supply
1000
Consumer Surplus
900
800
P,
W
700
Producer Surplus
600
500
400
300
200
100
+
35
70
105
140 175
210
245
280
315
350
QUANTITY (Tonnes of lemons)
PRICE (Dollars per tonne)

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Step 2: Representation of the graph

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Step 3: Export quantity

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Step 4: CS & PS

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Step 5: Change in surplus

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