QUESTION 1 10 poi The world price of rice is currently $450 per metric ton. Assu

Question

QUESTION 1 10 poi 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?

Explanation / Answer

Question 1

The current price of rice per metric ton in South Korea is $550 ($450 world price + $100 tariff).

Question 3

Change in consumer surplus in South Korea due to elimination of tariff:

Reduction in price* the initial consumption + increase in CS due to increased consumption

=$75*3million + 1/2*$75*1million (World price rises to $475 per metric ton. Therefore, effective price fall = $75 per metric ton)

= + $262.5 million. (increase in consumer surplus)

Question 6

Net effect in South Korea of tariff reduction is a gain.

1/2*$75*0.9 million + 1/2*$75*1 million

= + $71.25 million

Question 7

Analysts consider South Korea to be a large country in the world rice market because it is capable of changing the world price of rice.(from $450 to $475 per metric ton)

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.