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6. Effects of a tariff in a small nation Suppose New Zealand is open to free trade in the world market for wheat. Because of New Zealand's small size, the demand for and supply of wheat in New Zealand do not affect the world price. The following graph shows the domestic wheat market in New Zealand. The world price of wheat is Pw = $250 per ton. Throughout this problem, assume that changes in trade policies in other nations do not significantly affect the world market for wheat and that there are no transportation or transaction costs associated with international trade in wheat. Also assume that domestic supplies will satisfy domestic demand as much as possible before any exporting or importing takes place. 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 domestic producer surplus (PS). PRICE (Dollars per ton) 460 430 400 370 340 310 280 250 220 190 160 Domestic Demand 0 5 Domestic Supply 10 15 20 25 30 35 40 QUANTITY (Thousands of tons of wheat) 45 Pw 50 CS PS (?)

6. Effects of a tariff in a small nation Suppose New Zealand is open to free trade in the world market for wheat. Because of New Zealand's small size, the demand for and supply of wheat in New Zealand do not affect the world price. The following graph shows the domestic wheat market in New Zealand. The world price of wheat is Pw = $250 per ton. Throughout this problem, assume that changes in trade policies in other nations do not significantly affect the world market for wheat and that there are no transportation or transaction costs associated with international trade in wheat. Also assume that domestic supplies will satisfy domestic demand as much as possible before any exporting or importing takes place. 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 domestic producer surplus (PS). PRICE (Dollars per ton) 460 430 400 370 340 310 280 250 220 190 160 Domestic Demand 0 5 Domestic Supply 10 15 20 25 30 35 40 QUANTITY (Thousands of tons of wheat) 45 Pw 50 CS PS (?)

Principles of Economics, 7th Edition (MindTap Course List)
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 1PA
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6. Effects of a tariff in a small nation Suppose New Zealand is open to free trade in the world market for wheat. Because of New Zealand's small size, the demand for and supply of wheat in New Zealand do not affect the world price. The following graph shows the domestic wheat market in New Zealand. The world price of wheat is Pw = $250 per ton. Throughout this problem, assume that changes in trade policies in other nations do not significantly affect the world market for wheat and that there are no transportation or transaction costs associated with international trade in wheat. Also assume that domestic supplies will satisfy domestic demand as much as possible before any exporting or importing takes place. 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 domestic producer surplus (PS). (?) PRICE (Dollars per ton) 460 430 400 370 340 310 280 250 220 190 160 0 Domestic Demand Domestic Supply x 5 10 15 25 30 35 40 QUANTITY (Thousands of tons of wheat) 20 45 PW 50 CS PS
Transcribed Image Text:6. Effects of a tariff in a small nation Suppose New Zealand is open to free trade in the world market for wheat. Because of New Zealand's small size, the demand for and supply of wheat in New Zealand do not affect the world price. The following graph shows the domestic wheat market in New Zealand. The world price of wheat is Pw = $250 per ton. Throughout this problem, assume that changes in trade policies in other nations do not significantly affect the world market for wheat and that there are no transportation or transaction costs associated with international trade in wheat. Also assume that domestic supplies will satisfy domestic demand as much as possible before any exporting or importing takes place. 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 domestic producer surplus (PS). (?) PRICE (Dollars per ton) 460 430 400 370 340 310 280 250 220 190 160 0 Domestic Demand Domestic Supply x 5 10 15 25 30 35 40 QUANTITY (Thousands of tons of wheat) 20 45 PW 50 CS PS
If New Zealand allows international trade in the market for wheat, it will import your answer, accounting for the horizontal axis units.) tons of wheat. (Note: Be sure to enter the full value for Now suppose the New Zealand government decides to impose a tariff of $30 on each imported ton of wheat. After the tariff, the domestic price of a ton of wheat will be $ , and New Zealand will import tons of wheat. Show the effects of the $30 tariff on the following graph. Use the grey line (star symbol) to indicate the world price plus the tariff. Then, use the green triangle (triangle symbols) to show the consumer surplus with the tariff and the purple triangle (diamond symbols) to show the domestic 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 triangles (dash symbols) to shade the areas representing the net loss or deadweight loss (DWL) caused by the tariff.
Transcribed Image Text:If New Zealand allows international trade in the market for wheat, it will import your answer, accounting for the horizontal axis units.) tons of wheat. (Note: Be sure to enter the full value for Now suppose the New Zealand government decides to impose a tariff of $30 on each imported ton of wheat. After the tariff, the domestic price of a ton of wheat will be $ , and New Zealand will import tons of wheat. Show the effects of the $30 tariff on the following graph. Use the grey line (star symbol) to indicate the world price plus the tariff. Then, use the green triangle (triangle symbols) to show the consumer surplus with the tariff and the purple triangle (diamond symbols) to show the domestic 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 triangles (dash symbols) to shade the areas representing the net loss or deadweight loss (DWL) caused by the tariff.
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