5. Welfare effects of a tariff in a small country Suppose Kenya is open to free trade in the world market for wheat. Because of Kenya's small size, the demand for and supply of wheat in Kenya do not affect the world price. The following graph shows the domestic wheat market in Kenya. The world price of wheat is Pw-$250 per ton. On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer's surplus (CS) when the economy is at the free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing producers' surplus (PS). PRICE (Dollars per ton) 400 370 340 310 280 0 Domestic Demand 5 Domestic Supply 10 15 20 25 30 35 QUANTITY (Thousands of tons of wheat) 40 50 If Kenya allows international trade in the market for wheat, it will import Show the effects of the $60 tariff on the following graph. 3 9 tons of wheat. Now suppose the Kenyan government decides to impose a tariff of $50 on each imported ton of wheat. After the tariff, the price Kenyan consumers pay for a ton of wheat is , and Kenya will import tons of wheat.
5. Welfare effects of a tariff in a small country Suppose Kenya is open to free trade in the world market for wheat. Because of Kenya's small size, the demand for and supply of wheat in Kenya do not affect the world price. The following graph shows the domestic wheat market in Kenya. The world price of wheat is Pw-$250 per ton. On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer's surplus (CS) when the economy is at the free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing producers' surplus (PS). PRICE (Dollars per ton) 400 370 340 310 280 0 Domestic Demand 5 Domestic Supply 10 15 20 25 30 35 QUANTITY (Thousands of tons of wheat) 40 50 If Kenya allows international trade in the market for wheat, it will import Show the effects of the $60 tariff on the following graph. 3 9 tons of wheat. Now suppose the Kenyan government decides to impose a tariff of $50 on each imported ton of wheat. After the tariff, the price Kenyan consumers pay for a ton of wheat is , and Kenya will import tons of wheat.
Principles of Macroeconomics (MindTap Course List)
7th Edition
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Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: Application: International Trade
Section: Chapter Questions
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Transcribed Image Text:5. Welfare effects of a tariff in a small country
Suppose Kenya is open to free trade in the world market for wheat. Because of Kenya's small size, the demand for and supply of wheat in Kenya do
not affect the world price. The following graph shows the domestic wheat market in Kenya. The world price of wheat is Pw=$250 per ton.
On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer's surplus (CS) when the economy is at the
free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing producers' surplus (PS).
PRICE (Dollars per ton)
490
460
430
400
370
340
310
280
250
220
190 +
0
Domestic Demand
5
Domestic Supply
10 15 20 25 30 35
QUANTITY (Thousands of tons of wheat)
40
P
50
If Kenya allows international trade in the market for wheat, it will import
Show the effects of the $60 tariff on the following graph.
CS
PS
tons of wheat.
Now suppose the Kenyan government decides to impose a tariff of $60 on each imported ton of wheat. After the tariff, the price Kenyan consumers
pay for a ton of wheat is $
and Kenya will import
tons of wheat.
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