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. 410Domestic Demand Domestic Supply 395 Equilibrium without Trade 380 365 350t Consumer Surplus 335 320 t Producer Surplus 305 290 275 260 0 20 40 60 100 120 140 160 180 200 QUANTITY (Tons of soybeans)

Answer 1

410 Domestic Demand Domestic Supply 395 Equilibrium without Trade 380 365 1 350 Consumer Surplus 335 ш320 Producer Surplus 305 290 275 260 0 20 406080 100 180 140 100 180 299 QUANTITY (Tons of soybeans)

Based on previous graph,total surplus in the absence of international trade is = [0.5x410-335x100]+[0.5x335-260x100] = 3750+3750 = 7500

410 Domestic Demand 395 Consumer Surplus 380 365 *iti 1 Producer Surplus 350 335 ш320 a 305 290 275 ого 40 60 80 100 120 140 160 180 200 QUANTITY (Tons of soybeans) 260

When columbia allows free trade of soybeans,the price is 350.At this price 80 tons will be demanded and 120 tons will be supplied.Therefore Columbia will export 120-80 = 40 tons

CS without free trade = 3750

CS with free trade = 0.5x410-350x80 = 2400

PS without free trade = 3750

PS with free trade = 0.5x350-260x120 = 5400

When Columbia allows free trade,the country's CS decreases by 3750-2400 = 1350 and PS increases by 5400-3750 = 1650 so the net effect of international trade on Columbia's total surplus is a gain of 1650-1350 = 300