4 . Welfare effects of free trade in an importing country

Consider the Bolivian market for lemons.

The following graph shows the domestic demand and domestic supply curves for lemons in Bolivia. Suppose Bolivia's government currently does not allow international trade in lemons.

Use the black point (plus symbol) to indicate the equilibrium price of a tonne of lemons and the equilibrium quantity of lemons in Bolivia in the absence of international trade. Then, use the green point (triangle symbol) to shade the area representing consumer surplus in equilibrium. Finally, use the purple point (diamond symbol) to shade the area representing producer surplus in equilibrium.

Note: Select and drag a fill-area point from the palette to the graph. To fill in regions on the graph, merely drop the fill-area point on the desired region.

Domestic Demand Domestic Supply 1150 1100 No Trade Equilibrium 1050 A 1000 Consumer Surplus 950 900 PRICE (Dollars per tonne) Producer Surplus 850 800 750 700 850 0 40 80 120 160 200 240 280 320 360 QUANTITY (Thousands of tonnes of lemons)1150 Domestic Demand Domestic Supply 1100 Consumer Surplus 1050 1000 Producer Surplus 950 PRICE (Dollars per tonne) 900 850 800 World Price 750 700 850 0 40 80 120 160 200 240 280 320 380 400 QUANTITY (Thousands of tonnes of lemons)