Part 1: Suppose Zambia is open to free trade in the world market for soybeans. Because of Zambia’s small size, the demand for and supply of soybeans in Zambia do not affect the world price. The following graph shows the domestic soybeans market in Zambia. The world price of soybeans is PW=$400
per ton. Throughout this problem, assume that changes in trade policies in other nations do not significantly affect the world market for soybeans and that there are no transportation or transaction costs associated with international trade in soybeans. Also assume that domestic supplies will satisfy domestic demand as much as possible before any exporting or importing takes place.
Show the effects of the $200 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.
Complete the following table to summarize your results from the previous two graphs.
Under Free Trade
(Dollars)
Under a Tariff
(Dollars)
Consumer surplus
Producer surplus
Government revenue
0
Based on your analysis, as a result of the tariff, Zambia's consumer surplus :. by , and producer surplus by . Taking into account how much revenue the tariff generates for the government, the net welfare effect is a of
Show the effects of the $200 tariff on the following graph.
Use the grey line (star symbol) to indicate the worid 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
shade the areas representing the net loss or deadweight loss (DWL) caused by the tariff.
1200
Domestic Demand
Domestic Supply
1100
World Price Plus Tariff
1000
900 800 PRICE (Dollars per ton) 700 009 500
CS
PS
400
Government Revenue
300
200 0
10
15
20 25
30
35
40
45 QUANTITY (Thousands of tons of soybeans)
50
DWL
Complete the following table to summarize your results from the previous two graphs.
Under Free Trade
Under a Tariff
(Dollars)
(Dollars)
Consumer surplus
Producer surplus
Government revenue
0
Based on your analysis, as a result of the tariff, Zambia's consumer surplus V by|s , and producer surplus by|S . Taking into account how much revenue the tariff generates for the government, the net welfare effect is a