3. Welfare effects of a tariff in a small country

Suppose New Zealand is open to free trade in the world market for wheat. Because of New Zealand's small size, the demand for and supply of wheat in New Zealand do not affect the world price. The following graph shows the domestic wheat market in New Zealand. The world price of wheat isPWPW= $250 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).

\f530 Domestic Demand Domestic Supply 490 World Price Plus Tariff 450 410 CS 370 330 PRICE (Dollars perton) 290 PS PW 250 210 Government Revenue 170 130 15 30 45 60 75 150 DWL QUANTITY (Tons of wheat)