Question

4. Effects of a tariff on international trade The following graph shows the domestic supply of and demand for maize in Bangladesh. The world price (Pw) of maize is $245 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. 515 า Domestic Demand 425 365 305

Answer 1

Since demand curve passes through points (0,515) & (500, 215) so eqn of demand can be given by P - 515 = 215 = 515/500 (Q - 0) P - 515 = -3/5 (Q) Q = 5/3 (515 - P) eqn of demand [Since two point formula of delta f Line of two point (x_1, y_1)t (x_2, y_2) are given y - y_1 = y_2 - y_1/x_2 - x_1 (x - x_1) Since supply curve passer through (0, 515) & (250, 365) so eqn of supply P - 215 365 - 215/250 - 0 (Q - 0) P - 215 = 3/5 (Q) Q = 5/3(P - 215)eqn of Domestic supply At P_w = 245 demand for maize Q = 5/3(515 - P) = 5/3 (515 - 245) Q = 450 demand at P_w = 245 At P_w = 245 domestic supply Q = 5/3 (P - 215) = 5/3(245 - 215) = 50 Q = 50 \r\n Since domestic supply (i e 50) is less than demand (i e 450) so this is case of shortage of supply