Reference no: EM131162223

Welfare effects of a tariff in a small country Suppose Guatemala is open to free trade in the world market for soybeans. Because of Guatemala's small size, the demand for and supply of soybeans in Guatemala do not affect the world price. The following graph shows the domestic soybeans market in Guatemala. The world price of soybeans is P_w = $400 per ton. On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer surplus (CS) when the economy is at the free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing producer surplus (PS). If Guatemala allows international trade in the market for soybeans, it will import tons of soybeans. Now suppose the Guatemalan government decides to impose a tariff of $40 on each imported ton of soybeans. After the tariff, the price Guatemalan consumers pay for a ton of soybeans is, and Guatemala will import tons of soybeans. Show the effects of the $40 tariff on the following graph. Use the black line (plus symbol) to indicate the world price plus the tariff. Then, use the green triangle (triangle symbols) to show the consumer surplus with the tariff and the purple triangle (diamond symbols) to show the producer surplus with the tariff. Lastly, use the orange quadrilateral (square symbols) to shade the area representing government revenue received from the tariff and the tan triangles (dash symbols) to shade the areas representing the net loss or deadweight loss (DWL) caused by the tariff.