Question

0. variable The following graph shows the market for wheat in the European Union (EU). The world price of wheat is $2.00 per bushel, so Sworld represents the world supply assuming that the EU cannot affect the world price of wheat. To support the agricultural sector, the EU guarantees a certain price for the farmers by Imposing a variable levy of $2.00 per bushel to limit the import of wheat. On the graph, use the purple line (diamond symbol) to show the support price the farmers receive due to the variable $2.00 levy. Note: Select and drag the line segment from the palette to the graph. Then select a point on the line segment and drag it to its desired position. Support Price Sword PRICE (Dollars per bushel) 1.00 0 2000 4000 6000 6000 10000 12000 14000 15000 15000 20000 WHEAT (Bushels)

Answer 1

Answer:

Du Support Price PRICE Dollars per bushe Support price 2000 4000 6000 6000 10000 2000 1000 10000 WHEAT Bushels)

The world price of wheat is $2 per bushel.

The EU imposes a variable levy of $2 per bushel.

So, domestic price in EU will become ($2 + $2) $4 per bushel.

Following is the complete table -

	Production	Consumption	Imports
Before the levy	4,000	16,000	16,000 – 4,000 = 12,000
After the levy	8,000	12,000	12,000 – 8,000 = 4,000

World price falls to $1 per bushel.

Support Price 0 per buxhel) SW FALE IL 2000 400000 000 3000 - 2000 2000 2000 200 WHEAT (Bushels)

EU maintains the support price at $4 per bushel.

This means that it has to increase variable levy from $2 to $3.

Given the change in the world price, the variable levy adjusts to $3 per bushel of wheat in order to maintain the support price.

Following statements describe the impact of variable levy on the international trade -
1. Foreign producers are discouraged from reducing prices to maintain export sales

2. Foreign producers has no incentive to subsidize their exports.