2. Effects of a tariff on international trade wheat in New Zealand. The world pr

Question

2. Effects of a tariff on international trade wheat in New Zealand. The world price (Pw) of wheat is $240 per bushel and is The following graph shows the domestic supply of and demand for represented by the horizontal black line. Throughout the question, assume that the amount d price of wheat and suppliers will satisfy domestic demand as much as possible before any exporting or i emanded by any one country does not affect the world that there are no transportation or transaction costs assodated with international trade in wheat. Also, assume that domestic Domestic Supply 440 NDomestic Demand 415 390 365 340 315 290 265 240 215 190 0 20 40 60 80 100 120 140 160 180 200 QUANTITY (Bushels of wheat)

Explanation / Answer

If New Zealand is open to international trade in wheat without any restrictions, it will import = 160 - 40 = 120 bushels of wheat. (Demand - Supply = Imports)

Suppose the New Zealand government wants to reduce imports to exactly 80 bushels of wheat to help domestic producers. A tariff of $ 25 per bushel will achieve this.

Tariff revenue = 25 x 80 = $ 2000

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