Question

ng cengage.com CENGAGE MINDTAP Homework (Ch 09) Hemps e ep the rigest 1. Welfare effects of free trade in an exporting country Consider the Kenyan market for lemons The following graph shows the domestic demand and domestic supply curves for lemons in Kenya. Suppose Kenya's government currently does not allow international trade in lemons Use the black point (plus symbol) to indicate the equilibrium price of a ton of lemons and the equilibrium quantity of lemons in Kenya in the absence of international trade. Then, use the green triangle (triangle symbol) to shade the awarepresenting consumer surplus in equilibrium nally, use the purple triangle (diamond symbol) to shade the area representing producer surplus in equilibrium. Equilibrium without Trade Consumer Surplus

Answer 1

without free trade

CS = consumer surplus

PS = producer surplus

TS = Total surplus

CS = 1/2(600- 0)(175 -0)

= 1/2$\times$600$\times$175

= 52500

PS = 1/2(600 - 0)(175 - 0)

=  1/2$\times$600$\times$175

= 52500

TS = CS + PS

= 52500 + 52500

= 105,000

Thus,total surplus in the absence of trade is 105,000

With free trade

When Kenya allows free trade of lemons, the price of lemons in Kenya will be 800 i.e. Pw = 800 at this price 135 tons of lemons will be demanded in Kenya, and 245 tons of lemons will be supplied by domestic suppliers. Therefore Kenya will export 245 - 135 = 110 tons of lemons

CS = 1/2(1100 - 800)(135 -0)

= 1/2(300)(135)

= 20250

PS = 1/2(800 - 0)(245 - 0)

= 1/2(800)(245)

= 98000

TS(Total welfare) = CS + PS

= 20250 + 98000

= 118,250

The CS falls by 32250 , PS increases by 45,500 so the net effect of international trade on Kenya's total surplus is a rise of 13250