Consider the market for blueberries (a homogeneous product) in Madagascar, which is con- sidered a small country. Demand for a good is given by Qp = 100-P. Domestic supply for the good is given by: Qs = P. Each country that exports blueberries has different marginal cost: $30 per crate in South Africa, $25 per crate in Peru, and $20 per crate in Chile. (a) Calculate the price, domestic output, consumption, imports, consumer surplus, and producer surplus associated with blueberries in the Madagascar free-trade equilibrium. (b) In the free-trade equilibrium, how many crates of blueberries are imported from each of the three source countries? (c) Calculate the price, domestic output, consumption, imports, consumer surplus, pro- ducer surplus, and government revenue associated with blueberries if Madagascar adopts a $15 MFN tariff on all WTO members. How many crates of blueberries are imported from each of the three source countries? (d) With the adoption of a Southern African Free Trade Agreement (SAFTA), farmers in South Africa can export to Madagascar tariff-free. Calculate the price, domestic out- put, consumption, imports, consumer surplus, and producer surplus in the Madagascar blueberry market. How many crates of blueberries are imported from each of the three source countries? (e) Compared to your answer from part (e), did SAFTA increase or decrease welfare in Madagascar? By how much? What can you conclude about the relative effects of trade creation and trade diversion as a result of the agreement?
Consider the market for blueberries (a homogeneous product) in Madagascar, which is con- sidered a small country. Demand for a good is given by Qp = 100-P. Domestic supply for the good is given by: Qs = P. Each country that exports blueberries has different marginal cost: $30 per crate in South Africa, $25 per crate in Peru, and $20 per crate in Chile. (a) Calculate the price, domestic output, consumption, imports, consumer surplus, and producer surplus associated with blueberries in the Madagascar free-trade equilibrium. (b) In the free-trade equilibrium, how many crates of blueberries are imported from each of the three source countries? (c) Calculate the price, domestic output, consumption, imports, consumer surplus, pro- ducer surplus, and government revenue associated with blueberries if Madagascar adopts a $15 MFN tariff on all WTO members. How many crates of blueberries are imported from each of the three source countries? (d) With the adoption of a Southern African Free Trade Agreement (SAFTA), farmers in South Africa can export to Madagascar tariff-free. Calculate the price, domestic out- put, consumption, imports, consumer surplus, and producer surplus in the Madagascar blueberry market. How many crates of blueberries are imported from each of the three source countries? (e) Compared to your answer from part (e), did SAFTA increase or decrease welfare in Madagascar? By how much? What can you conclude about the relative effects of trade creation and trade diversion as a result of the agreement?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider the market for blueberries (a homogeneous product) in Madagascar, which is con-
sidered a small country. Demand for a good is given by QD = 100– P. Domestic supply for
the good is given by: Qs = P. Each country that exports blueberries has different marginal
cost: $30 per crate in South Africa, $25 per crate in Peru, and $20 per crate in Chile.
(a) Calculate the price, domestic output, consumption, imports, consumer surplus, and
producer surplus associated with blueberries in the Madagascar free-trade equilibrium.
(b) In the free-trade equilibrium, how many crates of blueberries are imported from each
of the three source countries?
(c) Calculate the price, domestic output, consumption, imports, consumer surplus, pro-
ducer surplus, and government revenue associated with blueberries if Madagascar
adopts a $15 MFN tariff on all WTO members. How many crates of blueberries
are imported from each of the three source countries?
(d) With the adoption of a Southern African Free Trade Agreement (SAFTA), farmers in
South Africa can export to Madagascar tariff-free. Calculate the price, domestic out-
put, consumption, imports, consumer surplus, and producer surplus in the Madagascar
blueberry market. How many crates of blueberries are imported from each of the three
source countries?
(e) Compared to your answer from part (c), did SAFTA increase or decrease welfare in
Madagascar? By how much? What can you conclude about the relative effects of trade
creation and trade diversion as a result of the agreement?
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Step 1: Define market for homogenous product.
VIEWStep 2: Calculate Free trade equilibrium price and quantity.
VIEWStep 3: Calculate the price, domestic output, consumption, imports, consumer surplus and producer surplus.
VIEWStep 4: Calculate the new price and quantity with a tariff.
VIEWStep 5: Calculate consumer surplus and producer surplus without tariff.
VIEWStep 6: Compare the welfare of Madagascar with and without tariff
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