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The following graph shows the domestic supply of and demand for wheat in Bolivia
The following graph shows the domestic supply of and demand for wheat in Bolivia. The world price (Pw) of wheat is $260 per bushel and is represented by the horizontal black line. Throughout the question, assume that the amount demanded by any one country does not affect the worla price of wheat and that there are no transportation or transaction costs associated with international trade in wheat. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. ? 440 Domestic Demand Domestic Supply 420 400 380 350 PRICE (Dollars per bushel) 340 320 300 280 200 240 049 80 360 400 120 160 200 240 280 320 QUANTITY (Bushels of wheat)
Homework (Ch 09) 300 340 PRICE (Dollars per b 320 300 280 200 240 0 40 30 400 120 160 200 240 280 320 360 QUANTITY (Bushels of wheat) d If Bolivia is open to international trade in wheat without any restrictions, it will import bushels of wheat. per Suppose the Bolivian government wants to reduce imports to exactly 160 bushels of wheat to help domestic producers. A tariff of 5 bushel will achieve this. A tariff set at this level would raise in revenue for the Bolivian government.
Expert Solution
Solution :
World Price of wheat per bushel(PW) = $260
At the PW, Domestic Supply = 40 bushels of wheat
Domestic Demand = 360 bushels of wheat
Therefore, Import of wheat per bushels = 360 - 40 = 320 bushels of wheat
If government wants to limit import to 160 bushels of wheat, it will levy tariff on the imports.
By adding the domestic supply and import limit, we can find the new total demand and supply of wheat.
Therefore, total demand and supply of wheat = 40 + 160 = 200 bushels of wheat
Now we check on the graph, what price of wheat will make the demand 20p bushels of wheat.
By looking at the graph, we see that at $340 per bushel of wheat, demand of wheat comes to 200.
Existing world price = $260
Therefore, tariff on import = $340 - $260 = $80
Hence, if Bolivian government levies a tariff of $80 on per bushel of wheat, the consumption/demand will fall to 200 bushels and only 160 bushels will be imported.
Total revenue for Government by this tariff = $80 per bushel of wheat × 160 bushel of wheat = $12,800
Therefore, by tariff on this level Bolivian Government will get revenue of $12800.
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