5 Welfare Effects Of A Tariff In A Small Country Suppose Burundi Is Open To Free Trade In The World Market For Maize B 1 (94.67 KiB) Viewed 12 times
5. Welfare effects of a tariff in a small country Suppose Burundi is open to free trade in the world market for maize. Because of Burundi's small size, the demand for and supply of maize in Burundi do not affect the world price. The following graph shows the domestic maize market in Burundi. The world price of maize is Pw=$350 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) Domestic Demand 590 550 X 510 470 710 670 630 430 390 350 310 0 Domestic Supply 3 6 9 12 15 18 21 24 QUANTITY (Thousands of tons of malze) P. FIN 27 30 If Burundi allows international trade in the market for maize, it will import PS tons of maize. Now suppose the Burundian government decides to impose a tariff of $40 on each imported ton of maize. After the tariff, the price Burundian consumers pay for a ton of maize is $ and Burundi will import tons of maize.
PRICE (Dollars per ton) 710 Domestic Demand 670 630 $ 590 550 510 470 430 390 350 310 0 3 6 9 15 18 21 24 QUANTITY (Thousands of tons of maize) Consumers' Surplus Producers' Surplus Government Revenue 12 Domestic Supply 0 Pw 27 30 $ World Price Plus Tariff Based on your analysis, as a result of the tariff, Burundi's consumers' surplus by $ , and the government collects $ A CS Complete the following table to summarize your results from the previous two graphs. Under Free Trade (Dollars) Under a Tariff (Dollars) PS Government Revenue DWL by $ , producers' surplus in revenue. Therefore, the net welfare effect is a of
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