Question

World price = \$400 per ton.

If Colombia allows international trade in the market for soybeans, it will import (40-10)= 30 tons of soybeans.

Consumer surplus is the triangle area above the price of \$400 and below the demand curve .

CS= (0.5)(1200-400)(40)= \$ (0.5)(800)(40)= \$ 16000.

Producer surplus is the triangle area above the supply curve and below the price of \$400.

PS = (0.5)(400-200)(10)= (0.5)(200)(10)= \$ 1000.

These areas are shown in the below figure:

Now, suppose the government decides to impose a tariff of \$200 on each imported ton of soybeans . After the tariff ,the price Colombian consumers pay for a ton of soybeans is \$(400+200)= \$600 per ton and Colombia will import (30-20)= 10 tons of soybeans.

Consumer surplus with tariff is the triangle area above the price of \$600 and below the demand curve .CS with tariff = (0.5)(1200-600)(30)= (0.5)(600)(30)= \$ 9000.

Producer surplus with tariff is the triangle area above the supply curve and below the price of \$600.

PS with tariff = (0.5)(600-200)(20)= (0.5)(400)(20)= \$4000

Government revenue is the rectangle area = (600-400)(30-20)= \$2000

These areas are shown in the below figure :

 Under free trade (Dollars) Under tariff (Dollars) Consumer surplus 16000 9000 Producer surplus 1000 4000 Government revenue 0 2000

As a result of the tariff , Colombia's consumer surplus decreases by (16000-9000) = \$7000 , producer surplus increases by (4000-1000)= \$3000 and the government collects \$2000 in revenue. Therefore, the net welfare effect is a decrease of (7000-3000-2000)= \$ 2000 .

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