The following graph shows the domestic demand for and supply of maize in Bangladesh. The world price (PW
) of maize is $245 per ton and is displayed as a horizontal black line. Throughout the question, assume that all countries under consideration are small, that is, the amount demanded by any one country does not affect the world price of maize and that there are no transportation or transaction costs associated with international trade in maize. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place.
A graph plots domestic supply and demand for maize in Bangladesh with price in dollars per ton on the y-axis ranging from 205 to 405 in increments of 20 and quantity in tons of maize on the x-axis ranging from 0 to 200 in increments of 20. The graph plots a downward sloping straight line curve labeled domestic demand ranging from (0, 405) to (200, 205), and an upward sloping straight line curve labeled domestic supply ranging from (0, 205) to (200, 405). A horizontal line labeled P sub W extends from (0, 245) to (200, 245), intersecting the domestic supply curve at (40, 245), and the domestic demand curve at (160, 245).
0
20
40
60
80
100
120
140
160
180
200
405
385
365
345
325
305
285
265
245
225
205
PRICE (Dollars per ton)
QUANTITY (Tons of maize)
Domestic Demand
Domestic Supply
P
W
If Bangladesh is open to international trade in maize without any restrictions, it will import
tons of maize.
Suppose the Bangladeshi government wants to reduce imports to exactly 40 tons of maize to help domestic producers. A tariff of
$
per ton will achieve this.
A tariff set at this level would raise
$
in revenue for the Bangladeshi government.