The world price of rice is currently $450 per metric ton. Assume that South Kore
ID: 1140881 • Letter: T
Question
The world price of rice is currently $450 per metric ton. Assume that South Korea is currently charging a $100 per metric ton tariff on imported rice. Assume that currently South Korean rice consumption is three million metric tons, South Korean rice production is 2.9 million metric tons, and South Korean rice imports are 100,000 metric tons. Economic analysts predict that if South Korea eliminates the $100 per metric ton tariff, then South Korean consumption of rice will rise to four million metric tons, and South Korean rice production will fall to two million metric tons. Analysts also believe that if South Korea removes the tariff, that will cause the world price of rice to rise from $450 per metric ton to $475 per metric ton. Use this information to answer the first seven questions. First, what is the current price of rice (per metric ton) in South Korea? tonfor ostniExplanation / Answer
(Part 1)
Before tariff, South Korean price was $450 which was the world price. With imposition of $100 tariff.
Current price = $450 + $100 = $550
(Question 4)
With tariff, domestic supply = 2.9 million MT at price of $550.
Without tariff, domestic supply = 2 million MT at price of $450.
Change in producer surplus = - (1/2) x Unit tariff x (Supply with tariff + Supply without tariff)
= - (1/2) x $100 x (2.9 + 2) million
= - $50 x 4.9 million
= -$245 million
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