1. Welfare effects of free trade in an exporting country The following problem analyzes the Brazilian market for limes. The graph below shows the domestic supply and demand curves for limes in Brazil. Assume that Brazil's government does not currently permit international trade in limes. Use the black point (plus symbol) to denote the equilibrium price of one ton of limes and the equilibrium quantity of limes in Brazil without international trade. Next, use the green triangle (triangle symbol) to shade in the area that represents consumer surplus in equilibrium. Finally, use the purple triangle (diamond symbol) to shade in the area that represents producer surplus in equilibrium. PRICE (Dollars per ton} 1000 900 800 700 600 500 400 300 200 100 Domestic Demand 50 100 150 200 250 300 350 QUANTITY (Tons of limes) 400 Domestic Supply 450 500 Equilibrium without Trade Consumer Surplus 8-0 Producer Surplus PRICE (Dollars per ton} 1000 Domestic Demand Domestic Supply 900 Consumer Surplus She Producer Surplus 800 700 600 500 400 300 200 100 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Tons of limes) 4. Effects of a tariff on international trade The following graph shows the domestic demand for and supply of oranges in Honduras. The world price (PW) of oranges is $520 per ton and is displayed as a horizontal black line. Throughout the question, assume that all countries under consideration are small, that is, the amount demanded by any one country does not affect the world price of oranges and that there are no transportation or transaction costs associated with international trade in oranges. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. When Brazil adjusts its trade policy to allow free trade of limes, the price of one ton of limes in Brazil becomes $800. At this price, tons of limes will be demanded in Brazil, and tons will be supplied by domestic suppliers. Therefore, Brazil will export tons of limes. Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade. With Free Trade Without Free Trade (Dollars) (Dollars) Consumer Surplus Producer Surplus When Brazil allows free trade, the country's producer surplus by $ and consumer surplus by $ Therefore, the net effect of allowing international trade on Brazil's total surplus is a of $Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade. With Free Trade Without Free Trade (Dollars) (Dollars) Consumer Surplus Producer Surplus loss gain When Brazil allows free trade, the country's producer surplus by $ an mer surplus by $ . Therefore, the net effect of allowing international trade on Brazil's total surplus is a V of $With Free Trade Without Free Trade (Dollars) (Dollars) increases When Brazil allows free trade, the country's producer surplus V b_, and consumer surplus V by . Therefore, the net effect of allowing international trade on Brazil's total surplus is a V of. Honduras is open to international trade in oranges without any restrictions, it will import: tons of oranges. Ippose the Honduran government wants to reduce imports to exactly 80 tons of oranges to help domestic producers. A tariff of per ton || achieve this. tariff set at this level would raise_ in revenue for the Honduran government. PRICE (Dollars per ton) 760 730 700 670 640 610 580 550 520 490 460 Domestic Demand 120 160 200 240 280 QUANTITY (Tons of oranges} 320 Domestic Supply 360 400 Based on the information from the previous graph, absent international trade total surplus is |:'. The following graph shows the same domestic supply and demand curves for limes in Brazil. Now, suppose that the Brazilian government changes its stance on international trade, deciding to allow free trade in limes. The horizontal black line (PW) represents the world price of limes at $800 per ton. Assume that Brazil's entry into the world market for limes has no effect on the world price and there are no transportation or transaction costs associated with international trade in limes. Also assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. Use the green triangle ( triangle symbol) to shade in the area representing consumer surplus, and then use the purple triangle (diamond symbol) to shade in the area representing producer surplus. Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade. With Free Trade Without Free Trade (Dollars) (Dollars) Consumer Surplus decreases increases When Brazil allows free trade, the country's producer surplus V by , and consumer surplus V by . Therefore, the net effect of allowing international trade on Brazil's total surplus is a Y 0. Producer Surplus