1100 Domestic Demand Domestic Supply 1000 Consumer Surplus 800 700 600 w 500 400

Question

1100 Domestic Demand Domestic Supply 1000 Consumer Surplus 800 700 600 w 500 400 Producer Surplus 300 200 100 0 35 70 105 140 175 210 245 280 315 350 QUANTITY (Tons of lemons) of When New Zealand allows free trade of lemons, the price of a ton of lemons in New Zealand will be $800. At this price, lemons will be demanded in New Zealand, and tons will be supplied by domestic suppliers. Therefore, Newi Zealand vwill export | be supplied tons of lemons. Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade. Without Free Trade (Dollars) With Free Trade (Dollars) Consumer Surplus Producer Surplus When New Zealand allows free trade, the country's consumer surplus . bys , and producer surplus So, the net effect of international trade on New Zealand's total surplus is a- of

Explanation / Answer

lemons demanded in New Zeland = 105

lemons supplied by domestic market = 245

export of lemons= excess supply= total supply - total demand

= 245-105= 140

consumer surplus before trade= 1/2×175×500= 175×250

=$43750

consumer surplus after trade = 1/2×300×150= $22500

producer surplus before trade= 1/2×600×175 = $52500

producer surplus after trade = 1/2×245×800=$98000

Allowing free trade consumer surplus decrease by (43750-22500)=$ 21250 and producer surplus increase by (98000-52500)=$45500

so net effect of international trade on total surplus is increase in total surplus by (45500-43750)= $1750

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