The following graph shows the same domestic supply and demand curves for limes in South Africa. Now, suppose that the South African government changes its stance on international trade, deciding to allow free trade in limes. The horizontal black line (Pw) represents the world price of limes at $800 per ton. Assume that South Africa's entry into the world market for limes has no effect on the world price and there are no transportation or transaction costs associated with international trade in limes. 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 in the area representing consumer surplus, and then use the purple triangle (diamond symbol) to shade in the area representing producer surplus. PRICE (Dollars perton) 1100 Domestic Demand 1000 900 800 700 600 500 400 300 200 100 0 35 70 Domestic Supply 105 140 175 210 245 QUANTITY (Tons of limes) Therefore, South Africa will export 280 Pw 315 350 Consumer Surplus Producer Surplus (?) + When South Africa adjusts its trade policy to allow free trade of limes, the price of one ton of limes in South Africa becomes $800. At this price, tons of limes will be demanded in South Africa, and tons will be supplied by domestic suppliers. tons of limes.
The following graph shows the same domestic supply and demand curves for limes in South Africa. Now, suppose that the South African government changes its stance on international trade, deciding to allow free trade in limes. The horizontal black line (Pw) represents the world price of limes at $800 per ton. Assume that South Africa's entry into the world market for limes has no effect on the world price and there are no transportation or transaction costs associated with international trade in limes. 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 in the area representing consumer surplus, and then use the purple triangle (diamond symbol) to shade in the area representing producer surplus. PRICE (Dollars perton) 1100 Domestic Demand 1000 900 800 700 600 500 400 300 200 100 0 35 70 Domestic Supply 105 140 175 210 245 QUANTITY (Tons of limes) Therefore, South Africa will export 280 Pw 315 350 Consumer Surplus Producer Surplus (?) + When South Africa adjusts its trade policy to allow free trade of limes, the price of one ton of limes in South Africa becomes $800. At this price, tons of limes will be demanded in South Africa, and tons will be supplied by domestic suppliers. tons of limes.
Principles of Macroeconomics (MindTap Course List)
7th Edition
ISBN:9781285165912
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: Application: International Trade
Section: Chapter Questions
Problem 8PA
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