Answer the questions below graph. The following graph shows the domestic supply

Question

Answer the questions below graph.

The following graph shows the domestic supply of and demand for wheat in Bangladesh. The world price (Pw) of wheat is $240 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. 480 Domestic Demand Domestic Supply 450 420 ???390 360 330 300 Y 270 240 80 0 20 40 60 80 100 120 140 160 180 200 QUANTITY (Bushels of wheat)

Explanation / Answer

If Bangladesh is open to international trade in wheat without restrictions it will import 120 bushels of wheat.

Imports = quantity demanded - quantity supplied = 160 - 40 = 120

Suppose the Bangladeshi government wants to reduce imports to exactly 80 bushels of wheat to help domestic producers. A tariff of $ 30 per bushel will achieve this.

Tariff = 270 - 240 = 30

A tariff set at this level would raise $2400 in revenue for the Bangladeshi government.

Revenue = 30* 80 = 2400

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