[Mexico represents a small part of the world orange market.]
- [Draw a diagram depicting the equilibrium in the Mexican orange market without international trade. Identify and label the equilibrium price, equilibrium quantity, consumer surplus, and producer surplus on the diagram.
- [Suppose the Mexican orange market is now opened to trade. Assume that the world orange price is below the Mexican price (before trade). Draw a separate graph to show this development. Identify and label the price and quantity traded before and after trade clearly on the diagram. No explanation required.
- [Explain changes in consumer surplus, producer surplus and total surplus for Mexico before and after the trade. Has total surplus increased or decreased? (Hint: You can choose to use the table to show consumer surplus, producer surplus and total surplus in scenarios in part (a) and part (b) and change in their size as done in the lecture.)
4. [Assume that the orange growers lobby succeeded in convincing the government to impose a tariff on orange imports. Compared to part B above, what is the change in consumer surplus, producer surplus and the total surplus? Show this imposition of tariff in a new diagram and identify these changes
4.1. Use a tabular format to present these changes in welfare (consumer surplus, producer surplus and total surplus) from tariff (i.e. scenario in part b: without tariff to part d: with tariff)
4.3. Does this policy create deadweight loss?