Suppose New Zealand is open to free trade in the world market for maize. Since New Zealand is small relative to the international market, the demand for and supply of maize in New Zealand have no impact on the world price. The following graph shows the domestic market for maize in New Zealand. The world price of a ton of maize is Pw = $800. 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) 1150 Domestic Demand 1100 1050 1000 950 900 850 800 750 700 + 650 0 5 10 15 Domestic Supply 20 25 30 35 QUANTITY (Tons of maize) Pw 40 45 50 F CS Because New Zealand participates in international trade in the market for maize, it will import PS Use the following graph to show the effects of the $50 tariff. Now suppose the New Zealand government decides to impose a tariff of $50 on each imported ton of maize. Under the tariff, the price New Zealand consumers pay for a ton of maize becomes $ and New Zealand will import tons of maize. tons of maize.
Suppose New Zealand is open to free trade in the world market for maize. Since New Zealand is small relative to the international market, the demand for and supply of maize in New Zealand have no impact on the world price. The following graph shows the domestic market for maize in New Zealand. The world price of a ton of maize is Pw = $800. 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) 1150 Domestic Demand 1100 1050 1000 950 900 850 800 750 700 + 650 0 5 10 15 Domestic Supply 20 25 30 35 QUANTITY (Tons of maize) Pw 40 45 50 F CS Because New Zealand participates in international trade in the market for maize, it will import PS Use the following graph to show the effects of the $50 tariff. Now suppose the New Zealand government decides to impose a tariff of $50 on each imported ton of maize. Under the tariff, the price New Zealand consumers pay for a ton of maize becomes $ and New Zealand will import tons of maize. tons of maize.
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: Application: International Trade
Section: Chapter Questions
Problem 8PA
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