Question

4.  The WSJ article stated that the EU eliminated import tariffs on all cereal crops. The domestic market for wheat in the EU is described by the following equations:

Demand: P = 10 – Q          Supply: P = Q

Where P is dollars per bushel of wheat and Q is billions of bushels per year. The world price for wheat was $3.00/bushel.

Graph the wheat market in the showing equilibrium both with no barriers to trade and with a $1.00/bushel tariff. Be sure to fully and clearly label the graph including the Domestic Demand curve, Domestic Supply curve, the World Price, the domestic quantity demanded, the domestic quantity supplied, the level of wheat Imports, domestic consumer surplus, domestic producer surplus, the tariff revenue, and the loss in surplus due to the tariff.

Answer 1

AAE - 3 (7) A4) In the diagram, do represents the demand curre and so represent the supply curve The would brice - $3/ bushel. Quantity demand at would price- 7 mits Quantity supplied at world price = 3 writs. / ! ! ! Thus, import = 7-32 4 wits. 0 4 3 2. LA, x with w tariff = $1, the price increases to $ 4. Quantity demanded = 6 units. Quantity supplied = 4 units Thus, imports = 6-4 = 2 units. Domestic Consumer sumphes with tarift = ar (ODBX) . .xox (lo-4) Xfxf's p18. Domestic Producer sweples with tarift = are loXAO) 2x4x4? Tariff Revenue - Imports & Tarift = (6-4% & 1 2x & 1 h $2 . Loss of Surphes due to Tarift - Red shaded area ar (O. ACE) + ar (OBDF) a LX1+1 + $x1x1 251 +52 21