Question

4. Effects of a tariff on international trade 

The following graph shows the domestic supply of and demand for oranges in Guatemala. The world price (Pw) of soybeans is $760 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 soybeans and that 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. 

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

Suppose the Guatemalan government wants to reduce imports to exactly 20 tons of oranges to help domestic producers. A tariff of _______ will achieve this. 

A tariff set at this level would raise $_______  in revenue for the Guatemalan government.

Answer 1