3. Welfare effects of a tariff in a smallcountry Suppose New Zealand is open to free trade in the wo

3. Welfare effects of a tariff in a smallcountry Suppose New Zealand is open to free trade in the world marketfor wheat. Because of New Zealand’s small size, the demand for andsupply of wheat in New Zealand do not affect the world price. Thefollowing graph shows the domestic wheat market in New Zealand. Theworld price of wheat is
P
W = $250 per ton. On the following graph, use the green triangle (trianglesymbols) to shade the area representing consumer surplus (CS) whenthe economy is at the free-trade equilibrium. Then, use the purpletriangle (diamond symbols) to shade the area representing producersurplus (PS). If New Zealand allows international trade in the market forwheat, it will importtons of wheat. Now suppose the New Zealand government decides to impose atariff of $60 on each imported ton of wheat. After the tariff, theprice New Zealand consumers pay for a ton of wheat is, and NewZealand will importtons of wheat. Show the effects of the $60 tariff on the following graph. Use the black line (plus symbol) to indicate the world priceplus the tariff. Then, use the green points (triangle symbols) toshow 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 thearea representing government revenue received from the tariff andthe tan points (rectangle symbols) to shade the areas representingdeadweight loss (DWL) caused by the tariff. . . .

 

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