To protect its domestic apple industry, Botswana has for many years prevented international trade in apples. The
Question:
To protect its domestic apple industry, Botswana has for many years prevented international trade in apples. The following graph represents the Botswana domestic market for apples. PBT is the current price and PAT is the world price.
a. If the government allows world trade in apples, what will happen to the price of apples in Botswana? Why?
b. Indicate the amount of apples domestic producers produce after there is trade in apples as DT Q . How many apples are imported?
c. Trade in imports causes producer surplus to be reduced by the amount
b. Show b on the graph.
d. The gains from trade equal the amount increased consumer surplus exceeds the loss in producer surplus. Show this gain, g, on the graph.
e. Explain why consumers in Botswana would still be better off if they were required to compensate producers for their lost producer surplus.
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