Question

4. Effects of a tariff on international trade 

The following graph shows the domestic supply of and demand for maize in Burundi. The world price (Pw) of maize is $240 per ton 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 maize and that there are no transportation or transaction costs associated with international trade in maize. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place.

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

Suppose the Burundian government wants to reduce imports to exactly 20 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.

Answer 1

Answer 2

a ) If Bangladesh opens to international trade then at the world price they will import 80 units because at the world price the local demand is 90 and local production is 10 only.

b) if they want to reduce the imports to 40 only the they will have to put a tariff of 50, then demand will be 30 and local supply will be 70 remaining 40 will be imported form the world market.

c) Tariff would raise = 50 x 40 = 2000 as revenue.