3. Welfare effects of a tariff in a small country Suppose Zambia is open to free trade in the world market for oranges. Because of Zambia's small size, the demand for and supply of oranges in Zambia do not affect the world price. The following graph shows the domestic oranges market in Zambia. The world price of oranges is Pw = $800 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). {51 1700 - Domestic Demand Domestic Supply 1600 -- 1500 -- CS A 1400 *0 PS _\\ w c) D I I 1200 -- 1100 -- PRICE (Dollars per ton 1000 -- 900 0 10 20 30 4o 50 60 7o 80 90 100 QUANTITY (Tons of oranges) If Zambia allows international trade in the market for oranges, it will import tons of oranges. Now suppose the Zambian government decides to impose a tariff of $200 on each imported ton of oranges. After the tariff, the price Zambian consumers pay for a ton of oranges is , and Zambia will import tons of oranges. Show the effects of the $200 tariff on the following graph. Use the black line (plus symbol) to indicate the world price plus the tariff. Then, use the green points (triangle symbols) to show 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 the area representing government revenue received from the tariff and the tan points (rectangle symbols) to shade the areas representing deadweight loss (D WL) caused by the tari'. 1700 - Domestic Demand Domestic Supply 1600 1500 World Price Plus Tariff A 1400 C 2 5 1300 CS 0. {'3 '__\\7 1200 $0 0 Q u.| 1100 9 PS 0: 0- 1000 900 P Government Revenue W 600 700 1 I . . . . . . . I . 0 10 20 30 40 50 60 70 80 90 100 DWL QUANTITY (Tons of oranges) Complete the following table to summarize your results from the previous two graphs. Under Free Trade Under a Tariff (Dollars) (Dollars) Consumer Surplus Producer Surplus Government Revenue 0 Based on your analysis, as a result of the tariff, Zambia's consumer surplus V by , producer surplus V by , and the government collects in revenue. Therefore, the net welfare effect is a V of