Use the graph input tool to help you answer the following questions. You will no

Question

Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.

Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.

If Burundi is open to international trade of maize without any restrictions, it will import ________ tons of maize.

Suppose the Burundian government wants to reduce imports to exactly 60,000 tons of maize to help domestic producers. A tariff of _________ per ton will achieve this.

A tariff set at this level would raise _________ in revenue for the Burundian government.

Explanation / Answer

Horizontal black line (PW) represents the world price which is $255 per ton. So, if Burundi opens up to international trade of maize without any restriction then world price will prevail in Burundi.

As one can see that at world price, domestic production is 60,000 tons of maize (PW intersecting supply curve) and domestic consumption is 240,000 tons of maize (PW intersecting demand curve).

The difference between domestic consumption and domestic production will be the amount of imports. So, Burundi will import 180,000 (240,000 tons – 60,000 tons) tons of maize.

So, if Burundi opens up to international trade of maize without any restriction, it will import 180,000 tons of maize.

As given figure shows that if price is fixed at $315 per ton then domestic production is 120,000 tons of maize and domestic consumption is 180,000 tons of maize. In such scenario, imports will be 60,000 (180,000 tons – 120,000 tons) tons of maize.

Thus, at price of $315 per ton, objective of government (to restrict imports to 60,000 tons) can be achieved.

To raise prices from $255 per ton to $315 per ton, government can impose a tariff of $60 per ton.

So, a tariff of $60 per ton can achieve the government objective.

At price of $315 per ton, 60,000 tons of maize is imported.

With tariff of $60 per ton, Burundian government can earn (60,000*$60) $3,600,000 or $3.6 million as tariff revenue.

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