2 Due Tomorrow at 11 PM CDT The following graph shows the domestic supply of and

Question

2 Due Tomorrow at 11 PM CDT The following graph shows the domestic supply of and demand for wheat in New Zealand. The world price (Pw) of wheat is $255 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 525 Domestic Demand Domestic Supply 495+ 465 435 405 375 045 315 285 Pw 226 0 10 20 3040 0 60 70 0 100 QUANTITY (Bushels of wheat)

Explanation / Answer

(a) Without restrictions, Domestic price = Pw = $255, at which price, domestic demand = 90 & domestic supply = 10.

Import = 90 - 10 = 80

(b) When imports = 40, (Domestic demand - Domestic supply) = 40, which holds true when domestic demand = 70, domestic supply = 30 at a price of $315.

Tariff = $315 = $255 = $60

(c) Tariff revenue = $60 x 40 = $2400

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