Please type your answer. Thanks. Question 6. (13 marKS) 2.5 2 The above figure s
ID: 1123376 • Letter: P
Question
Please type your answer. Thanks.
Question 6. (13 marKS) 2.5 2 The above figure shows the market for rice in Japan: S represents the domestic supply curve, D represents the domestic demand curve, and the world price is 1 a) Use the above figure and the given letters indicating specific areas (i.e, a, b, c, etc.). Copy the following table into your answer booklet and fill in the letters in each cell that correspond to the area of Consumer Surplus, Producer Surplus and Total Welfare Without free trade With free trade Change Consumer Surplus Producer Surplus Total Welfare (9 marks) b) If Japan agrees to the free trade, would Japan be a rice importer or a rice exporter? How much rice would Japan import export? Explain (2 marks) c) Based on your answer in b), If a $1 tariff is imposed on imported rice (or a $1 tax is imposed on exported rice), the loss in social welfare is measured by which area? Explain (2 marks)Explanation / Answer
(a)
(b) If the Japan agrees to the free trade, then Japan would import (Q2-Q1) quantity of rice because at world price $1, the domestic supply of rice is Q1 unit while the domestic demand is Q2 units. Since there is excess demand at world price $1, therefore the Japan would import.
(c)
If the $1 import tariff is imposed on the import of the rice, then the social welfare is measured by the area (i).
Area (i) shows the welfare gain, for the Japan.
Without free trade with free trade change CS a+b+f a+b+c+f+g+i +(c+g+i) PS c+d+g d -(c+g) Total welfare a+b+c+d+f+g a+b+c+d+f+g+i +(i)