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4. Effects of a tariff on international trade The following graph shows the domestic supply of and demand for wheat in New Zealand. The world price (Pw) of wheat is $260 per bushel 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 wheat and that there are no transportation or transaction costs associated with international trade in wheat. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. ? 485 Domestic Demand Domestic Supply 460 435 410 385 360 336 CE (Dollars per bushel) 77 M e ()
W 0 30 60 90 120 150 180 210 240 270 300 QUANTITY (Bushels of wheat) bushels of wheat. If New Zealand is open to international trade in wheat without any restrictions, it will import per Suppose the New Zealand government wants to reduce imports to exactly 120 bushels of wheat to help domestic producers, A tariff of $ bushel will achieve this. A tariff set at this level would raise in revenue for the New Zealand government. Grade It Now Save & Continue Continue without saving ¡D t e 9 260 235 A O