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Fools 4. Effects of a tariff on international trade The following graph shows the domestic supply of and demand for wheat in Bolivia. The world price (Pw) of wheat is $245 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. PRICE (Dollars per bushel) 405 Domestic Demand 455 395 365 335 305 275 245 215 185 0 10 1 1 Domestic Supply 80, 245 20 30 40 50 60 70 QUANTITY (Bushels of wheat) 1 1 80 90 PW 100

If Bolivia is open to international trade in wheat without any restrictions, it will import Suppose the Bolivian government wants to reduce imports to exactly 40 bushels of wheat to help domestic producers. A tariff of will achieve this. A tariff set at this level would raise s bushels of wheat. in revenue for the Bolivian government. Grade It Now per bushel Save & Continue Continue without saving