Question

4. Effects of a tariff on international trade The following graph shows the domestic supply of and demand for soybeans in Venezuela. The world price (Pw) of soybeans is $545 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. 860 Domestic Demand Domestic Supply 825 PRICE (Dollars per ton) 0 40 80 360 400 120 160 200 240 280 320 QUANTITY (Tons of soybeans)

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Answer 1

Ans: If Venezuela is open to international trade in soybeans without any restriction , it will import 320 tons of soybeans.

Ans: Suppose the Venezuelan government wants to reduce imports to exactly 160 tons of soybeans to help domestic producers. A tariff of $70 per ton will achieve this.

Explanation:

World price = $545

After imposition of tariff of $70 per ton , the new price will be ; $545 + $70 = $615

At the new price ( $615 ) , total import quantity = 280 - 120 = 160 tons

Ans: A tariff set at this level would raise $11200 in revenue for the Venezuelan government.

Explanation:

Total revenue raised from tariff = Tariff per ton * Total imported quantities

= $70 * 160

=$11200