Question

 Consider the Colombian market for soybeans.

 The following graph shows the domestic demand and domestic supply curves for soybeans in Colombia. Suppose Colombia's government currently does not allow international trade in soybeans.

 Use the black point (plus symbol) to indicate the equilibrium price of a ton of soybeans and the equilibrium quantity of soybeans in Colombia in the absence of international trade. Then, use the green triangle (triangle symbol) to shade the area representing consumer surplus in equilibrium. Finally, use the purple triangle (diamond symbol) to shade the area representing producer surplus in equilibrium.

 Based on the previous graph, total surplus in the absence of international trade is _______ 

 The following graph shows the same domestic demand and supply curves for soybeans in Colombia. Suppose that the Colombian government changes its international trade policy to allow free trade in soybeans. The horizontal black line (Pw) represents the world price of soybeans at $350 per ton. Assume that Colombia's entry into the world market for soybeans has no effect on the world price and there are no transportation or transaction costs associated with international trade in soybeans. Also assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place.

 Use the green triangle (triangle symbol) to shade consumer surplus, and then use the purple triangle (diamond symbol) to shade producer surplus.

 When Colombia allows free trade of soybeans, the price of a ton of soybeans in Colombia will be $350. At this price, _______  tons of soybeans will be demanded in Colombia, and _______  tons will be supplied by domestic suppliers. Therefore, Colombia will export _______  tons of soybeans.

 Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade.

 When Colombia allows free trade, the country's consumer surplus _______  by $_______ , and producer surplus _______  by $_______ . So, the net effect of international trade on Colombia's total surplus is a _______  of _______ .

Answer 1

TS = 0.5*125*(380-230) = 9375

At P=350

QD = 50

QS = 200

Exports = 200-50 = 150

	Without free trade	With free trade
CS	0.5*125*(380-305) = 4687.5	0.5*50*(380-350) = 750
PS	0.5*125*(305-230) = 4687.5	0.5*200*(350-230) = 12000

CS decreases by 3937.5

PS increases by 7312.5

Net effect is a gain of 3375