4. Effects of a tariff on international trade The following graph shows the domestic supply of and demand for maize in Guatemala. The world price (PW) of maize is $250 per tonne and is represented by the horizontal black line. Throughout the question, assume that the amount demanded by any one country does not affect the world price of maize and that there are no transportation or transaction costs associated with international trade in maize. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place
4. Effects of a tariff on international trade The following graph shows the domestic supply of and demand for maize in Guatemala. The world price (PW) of maize is $250 per tonne and is represented by the horizontal black line. Throughout the question, assume that the amount demanded by any one country does not affect the world price of maize and that there are no transportation or transaction costs associated with international trade in maize. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place
Chapter1: Making Economics Decisions
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4. Effects of a tariff on international trade
The following graph shows the domestic supply of and demand for maize in Guatemala. The world price (PW) of maize is $250 per tonne and is represented by the horizontal black line. Throughout the question, assume that the amount demanded by any one country does not affect the world price of maize and that there are no transportation or transaction costs associated with international trade in maize. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place
Transcribed Image Text:The following graph shows the domestic supply of and demand for maize in Guatemala. The world price (Pw) of maize is $250 per tonne and is
represented by the horizontal black line. Throughout the question, assume that the amount demanded by any one country does not affect the world
price of maize and that there are no transportation or transaction costs associated with international trade in maize. Also, assume that domestic
suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place.
475
Domestic Demand
Domestic Supply
450
425
400
375
350
325
300
275
Pw
250
225
0 40
80
120
180
200
240
280
320
360
400
QUANTITY (Tonnes of maize)
If Guatemala is open to international trade in maize without any restrictions, it will import
tonnes of maize.
Suppose the Guatemalan government wants to reduce imports to exactly 160 tonnes of maize to help domestic producers. A tariff of s
per
tonne will achieve this.
A tariff set at this level would raise S
in revenue for the Guatemalan government.
PRICE (Dollars per tonne)
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