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Suppose Nicaragua is open to free trade in the world market for soybeans. Since Nicaragua is small relative to the international market, the demand for
Suppose Nicaragua is open to free trade in the world market for soybeans. Since Nicaragua is small relative to the international market, the demand for and supply of soybeans in Nicaragua have no impact on the world price. The following graph shows the domestic market for soybeans in Nicaragua. The world price of a ton of soybeans is Pw = $250. 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). 490 Domestic Demand Domestic Supply 480 CS 430 40 370 PS 340 PRICE (Dollars per ton) 310 280 250 220 190 20 40 60 80 100 120 140 160 180 200 QUANTITY (Tons of soybeans) Because Nicaragua participates in international trade in the market for soybeans, it will import tons of soybeans. Now suppose the Nicaraguan government decides to impose a tariff of $60 on each imported ton of soybeans. Under the tariff, the price Nicaraguan consumers pay for a ton of soybeans becomes $ , and Nicaragua will import tons of soybeans.490 Domestic Demand Domestic Supply + 480 World Price Plus Tariff 430 400 CS 370 340 PRICE (Dollars per ton) 310 PS 280 Pw 250 Government Revenue 220 190 20 40 60 80 100 120 140 160 180 200 DWL QUANTITY (Tons of soybeans) Complete the following table to summarize your results from the previous two graphs. With Free Trade With a Tariff (Dollars) (Dollars) Consumer Surplus Producer Surplus Government Revenue Based on your analysis, as a result of the tariff, Nicaragua's consumer surplus by $ , producer surplus by $ |, and the government collects $ in revenue. Therefore, the net welfare effect is a of
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