4. Effects of a tariff on international trade The following graph shows the dome

Question

4. Effects of a tariff on international trade The following graph shows the domestic supply of and demand for maize in Burundi. The world price (Pw) of maize is $260 per tonne 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 maize and that there are no transportation or transaction costs associated with international trade in maize. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place 485Domestic Demand Domestic Supply 460 435 385 360 335 310 285 260--+ 235 0 40 80 120 160 200 240 280 320 360 400 QUANTITY (Tonnes of maize) If Burundi is open to international trade in maize without any restrictions, it wil import tonnes of maize Suppose the Burundian government wants to reduce imports to exactly 80 tonnes of maize to help domestic producers. A tariff of $ per tonne will achieve this A tariff set at this level would raise$ in revenue for the Burundian government.

Explanation / Answer

As it can be seen in the graph if the Burundi is open to international trade in maize without any restrictions it will import 320 ( 360 -40=320) tons of maize.

If the import is restricted only 80 tons of maize for helping the producer, then the tariff $75 ( 335 -260) tons of maize will achieve this quantity.

A tariff revenue for government= Tariff * quantity import after tariff

=$75* 80

=$6,000

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