Homework (Ch 09) Attempts Keep the Highest:/3 4 Ellects ol a tarilf on internati
ID: 1137409 • Letter: H
Question
Homework (Ch 09) Attempts Keep the Highest:/3 4 Ellects ol a tarilf on international trade The following graph shows the domestic supply of and demand for maize in Panama. The world price (Pw) of maize is $255 per ton and is represented by the horlzontal 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 satisty dormestic demand as much as possaible before any exporting or importing takes place Domestic Demand Oomestic Supply QUANTITY (Tons of mai2)Explanation / Answer
Answer:
1-
If panama is open to international trade in maize without any restrictions, it will import 400 tons of maize.
Because at the international price of $255 the domestic demand is 450 tons and 50 tons is being fulfilled by domestic suppliers so the rest 400 tons will be imported to fulfill the domestic demand.
2-
Suppose the Panamanian government wants to reduce imports to exactly 200 tons of maize to help domestic producers. A tariff of $75 will achieve this.
Because at quantity of 200 tons of maize the price is 330 and the international price is $255 where demand is 450 tons so to reduce imports to exactly at 200 tones government will apply $75 per ton tariff ($330 -$255 = $75)
*(the image is not much clear so I guess it is $330 at 200 quantities)
3-
A tariff set at this level would raise $7500 in revenue for the Panamanian government.
As demand is 300 at this import quantity and supply is 200
300 – 200 = 100
At the quantity of 200 tons the price is 330 and at this price domestic producers are providing 200 tons while the demand is 300 tons so the rest 100 tons (300 – 200 =100) will be imported
Government Revenue = imported quantity * tariff
= 100*75 = $7500
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