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5. Effects of a tariff in a small nation Suppose Kenya is open to free trade in the world market for wheat. Because of Kenya's small size, the demand for and supply of wheat in Kenya do not affect the world price. The following graph shows the domestic wheat market in Kenya. The world price of wheat is Py = $250 per ton. Throughout this problem, assume that changes in trade policies in other nations do not significantly affect the world market for wheat and that there are no transportation or transaction costs associated with international trade in wheat. Also assume that domestic supplies will satisfy domestic demand as much as possible before any exporting or importing takes place. On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer surplus (C5) when the economy is at the free-trade equilibrium. Then, use the purple triangle (diamond symbaols) to shade the area representing domestic producer surplus (P5). @ 320 Domestic Demand Domestic Supply 310 cS 300 200 280 PS 270 260 PRICE (Dollars per ton) 250 240 230 220 o 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of tons of wheat) If Kenya allows international trade in the market for wheat, it will import I:I tons of wheat. (Note: Be sure to enter the full value for your answer, accounting for the horizontal axis units.) Now suppose the Kenyan government decides to impose a tariff of $10 on each imported ton of wheat. After the tariff, the domestic price of a ton of wheatwill be[$ |, and Kenya willimport[ | tons of wheat. Show the effects of the $10 tariff on the following graph. Use the grey line (star symbol) to indicate the world price plus the tariff. Then, use the green triangle (triangle symbols) to show the consumer surplus with the tariff and the purple triangle (diamond symbols) to show the domestic 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 triangles (dash symbels) to shade the areas representing the net loss or deadweight loss (DWL) caused by the tariff. Q) 320 Domestic Demand Domestic Supply e 310 World Price Plus Tariff 300 . 200 = 2 280 Ccs o @ 8 a0 &0 o a 5 260 PS r - 240 Government Revenue 230 j 220 0 5 10 15 20 25 30 35 40 45 SO DWL QUANTITY (Thousands of tons of wheat) Complete the following table to summarize your results from the previous two graphs. Under Free Trade Under a Tariff (Dollars) (Deollars) Consumer surplus | | | | Producer surplus | | | | Government revenue 0 \\:\\ Based on your analysis, as a result of the tariff, Kenya's consumer surplus v by , and producer surplus v by . Taking into account how much revenue the tariff generates for the government, the net welfare effect is a v o