Global Markets in Action - International Trade Restrictions
Import Tariffs
Korea imports a large quantity of beef. With no beef trade, Korea's equilibrium price for beef was $8 million per kilo tonne and equilibrium quantity was 450 kilo tonne. If Korea opens its beef market to trade with no tariff, domestic demand would be 750 kilo tonne and domestic supply would be 150 kilo tonne at the world price of $4 million per kilo tonne. However, Korea currently imposes 35 per cent tariff rate on imported beef. With 35 per cent tariff, Korea's domestic supply and domestic demand were 300 kilo tonne and 600 kilo tonne respectively in 2015. Assume that intercept of supply curve is $2 million and demand curve is $15 million per kilo tonne.
(a) With 35 per cent tariff rate, what would be the price of beef per kilo tonnes in Korea and what would be Korea's beef import volume? Provide numeric details.
(b) Based on the information given above, draw a graph to show the areas of gains and losses from the trade with 35 per cent tariff rate. Then, calculate the actual value of change in consumer surplus, producer surplus, tariff revenue and the amount of deadweight loss before and after the tariff. Show your calculation.
Import Quotas
France exports cheese to Japan. But Japan imposes import quota on cheese imported from France.
(c) Other things being unchanged, explain how this import quota would influence France's cheese exports to Japan, consumer price of cheese in France's domestic market, consumer surplus (CS) and producer surplus (PS) in France.