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1. Welfare effects of free trade in an exporting country The following problem analyzes the South African market for limes. The graph below shows the domestic supply and demand curves for limes in South Africa. Assume that South Africa'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 South Africa 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. 900 estic Demand Domestic Supply 850 Equilibrium without Trade 800 750 700 Consumer Surplus PRICE (Dollars per ton) 650 600 Producer Surplus 550 500 450 400 0 20 40 60 80 100 120 140 160 180 200 QUANTITY (Tons of limes) 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 South Africa. Now, suppose that the South African 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 South Africa'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. 900 Domestic Demand Domestic Supply 350 _ h 800 Consumer Surplus W 750 - 700 - ProducerSurplus 650 - 600 - PRICE (Dollars per ton) 550 - 500 - 450 - 4oo . - - - l - I - - - . o 20 40 so so 100 120 140 160 180 200 QUANTITY (Tons of limes) When South Africa adjusts its trade policy to allow free trade of limes, the price of one ton of limes in South Africa becomes $800. At this price, tons of limes will be demanded in South Africa, and :tons will be supplied by domestic suppliers. Therefore, South Africa 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 I When South Africa allows free trade, the country's producer surplus V by $ , and consumer surplus V by $ . Therefore, the net effect of allowing international trade on South Africa's total surplus is a V of