The following problem analyzes the Bolivian market for pears. The graph below shows the domestic supply and demand curves for pears in Bolivia. Assume that
The following problem analyzes the Bolivian market for pears. The graph below shows the domestic supply and demand curves for pears in Bolivia. Assume that Bolivia's government does not currently permit international trade in pears. Use the black point (plus symbol) to denote the equilibrium price of one ton of pears and the equilibrium quantity of pears in Bolivia 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. @ 410 Domestic Demand Domestic Supply 380 Equilibrium without Trade 370 350 Consumer Surplus S Producer Surplus 330 210 200 PRICE (Dollars perton) 270 260 230 210 o a5 70 105 140 175 210 245 280 315 350 QUANTITY (Tons of pears) 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 pears in Bolivia. Now, suppose that the Bolivian government changes its stance on international trade, deciding to allow free trade in pears. The horizental black line ( Pw) represents the world price of pears at $350 per ton. The following graph shows the same domestic supply and demand curves for pears in Bolivia. Now, suppose that the Bolivian government changes its stance on international trade, deciding to allow free trade in pears. The horizontal black line ( Py) represents the world price of pears at $350 per ton. Assume that Bolivia's entry into the world market for pears has no effect on the world price and there are no transportation or transaction costs associated with international trade in pears. 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. 410 Domestic Demand Domestic Supply 300 Consumer Surplus B, Producer Surplus 2370 350 330 310 200 FRICE (Dollars perton) 270 250 230 210 + + + + + + + + 0 35 70 105 140 175 210 245 280 315 350 QUANTITY (Tons of pears) When Bolivia adjusts its trade policy to allow free trade of pears, the price of one ton of pears in Bolivia becomes $350. At this price, \\:Itons of pears will be demanded in Bolivia, and |:| tons will be supplied by domestic suppliers. Therefore, Bolivia will export: tons of pears. B Producer Surplus PRICE (Dollars perton) 210 0 3/ 70 105 140 175 210 245 280 5 3% QUANTITY (Tons of pears) When Bolivia adjusts its trade policy to allow free trade of pears, the price of one ton of pears in Bolivia becomes $350. At this price, : tons of pears will be demanded in Bolivia, and \\:I tons will be supplied by domestic suppliers. Therefore, Bolivia will expurtl:l tons of pears. 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 | ' | | When Bolivia allows free trade, the country's producer surplus increases W by , and consumer surplus w by . Therefore, the net effect of allowing international trade on Bolivia's total surplusisa of
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