Reference no: EM13106870
Question
South Korea is one of major beef importing countries. With no international trade, Korea's equilibrium price for beef was $10 million per kilo tonne and equilibrium quantity was 30 kilo tonne. If Korea opens its market to international trade with no tariff, domestic supply would be 10 kilo tonne and domestic demand would be 50 kilo tonne at the world price of $5 million per kilo tonne. However, Korea currently imposes 40 per cent tariff rate on all imported beef. With 40 per cent tariff, Korea's domestic supply and domestic demand are 20 kilo tonne and 40 kilo tonne respectively. Assume that intercept of supply curve is $3 million and demand curve is $15 million per kilo tonne.
(a) Draw a graph to analyse the effects of 40 per cent tariff rate in Korea on the price, domestic supply of and demand for beef, and compare the situation with no tariff case.
(b) Use the graph to illustrate and identify the gains and losses from trade with 40 per cent tariff rate, the tariff revenue and the deadweight loss.
(c) Calculate the values of change in consumer surplus, producer surplus, tariff revenue and the amount of deadweight loss.
(d) Suppose that Korea does not impose tariff any more but instead imposes an import quota of 20 kilo tonne. Draw a graph to illustrate the gains and losses from the import quota and on the graph identify the gains and losses, the importers' profit and the deadweight loss.
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