The accompanying table shows the U.S. domestic demand...

The accompanying table shows the U.S. domestic demand schedule and domestic supply schedule for oranges. Suppose that the world price of oranges is $\$ 0.30$ per orange. a. Draw the U.S. domestic supply curve and domestic demand curve. b. With free trade, how many oranges will the United States Import or export? Suppose that the U.S. government imposes a tariff on oranges of $\$ 0.20$ per orange. c. How many oranges will the United States import or export after introduction of the tariff? d. In your diagram, shade the gain or loss to the economy as a whole from the introduction of this tariff.

The accompanying table shows the U.S. domestic demand schedule and domestic supply schedule for oranges. Suppose that the world price of oranges is $\$ 0.30$ per orange.
a. Draw the U.S. domestic supply curve and domestic demand curve.
b. With free trade, how many oranges will the United States Import or export?
Suppose that the U.S. government imposes a tariff on oranges of $\$ 0.20$ per orange.
c. How many oranges will the United States import or export after introduction of the tariff?
d. In your diagram, shade the gain or loss to the economy as a whole from the introduction of this tariff.

Key Concepts

Deadweight Loss

Deadweight loss refers to the loss of economic efficiency when the equilibrium outcome is not achieved due to market interventions like tariffs. In the context of international trade, tariffs typically create deadweight losses by reducing the total surplus that would have been obtained under free trade, as consumer and producer surpluses do not fully offset the gains from protection.

Tariff

A tariff is a tax imposed on imported goods by a country's government with the aim of raising their price relative to domestic goods. This policy intervention can protect domestic industries but also tends to reduce overall consumption, leading to market distortions.

Trade Equilibrium with Free Trade

Trade equilibrium under free trade is achieved when a country's domestic consumption and production adjust to the world price. If the world price is lower than the domestic equilibrium price, the country becomes an importer, filling the gap between domestic supply and consumer demand.

Domestic Supply Curve

The domestic supply curve represents the relationship between the price of a good and the quantity that domestic producers are willing and able to supply. It is typically upward sloping, meaning that as the price rises, producers are motivated to supply more of the good due to increasing profitability.

Domestic Demand Curve

The domestic demand curve illustrates the relationship between the price of a good and the quantity that consumers are willing and able to purchase. It generally slopes downward, indicating that as the price falls, consumers tend to purchase more of the good because it becomes more affordable.

World Price

The world price is the prevailing price at which a good is traded in the international market, irrespective of domestic supply and demand conditions. It serves as a benchmark for open economy trade decisions and influences whether a country will import or export a good.

Transcript

00:01 The first part of this question asks us to draw the domestic demand and supply curves for the u .s.

00:07 Market for oranges.

00:08 So let's start by doing that from the table.

00:10 Right.

00:10 So from the table, the most important piece of information that we can gain is the price at which quantity demanded equals quantity supply.

00:19 Right.

00:19 And that price is going to be at 70 cents.

00:22 All right.

00:22 So let's draw this.

00:24 So we know that we have an upward sloping supply curve and a downward sloping demand curve.

00:30 Like this.

00:32 All right.

00:32 And then we know that our price right here, our equilibrium price is going to be at 70 cents.

00:38 I'll just write 0 .7.

00:40 And then at that price of 0 .7, we see that our quantity supplied and demanded will both be 8.

00:46 Right.

00:47 So this is our equilibrium price and quantity.

00:50 All right.

00:50 So now our next task of it asks us with free trade, how many oranges will the us import or export? right.

00:58 So we're told that the world price of oranges is 30 cents.

01:01 So let's model that.

01:03 So i'm going to draw our world price of oranges down here with this red.

01:08 So we'll have 30 cents down here.

01:10 So i'll just draw a line here to indicate this world price.

01:15 So since our world price is lower than what we can produce it for and sell it for on our local market, we're going to import, right? because u .s.

01:25 Consumers are going to want to buy it at this cheaper price.

01:27 So now we're going to have higher quantity demanded here than we have supplied.

01:35 And so this discrepancy between quantity demanded and supplied is how much we're going to import.

01:39 So this quantity demand and minus quantity supplied at 30 cents is the discrepancy is going to be 12.

01:47 So we're going to import 12 because our demand is 16 while our supply is only 4.

01:51 So we need to make up 12 units of oranges.

01:54 So next we're saying that the government has decided to impose a tariff on oranges of 20 cents per orange.

02:02 So what that's going to do is effectively raise the price by 20 cents from the world price...

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