1. Effects on Soybean Farmers: Perfect Competition. Suppose you are a lobbyist e

Question

1. Effects on Soybean Farmers: Perfect Competition. Suppose you are a lobbyist economist hired by the American Soybean Association who rep- resents over 300, 000 U.S. soybean farmers. You need to present to the President your analysis of the impact of this trade tention on the US soy- bean farmers and persuade him to repeal his trade policy. You know that the US soybean farmers mostly produce in small-scale family farms so that the soybean market is perfectly competitive. Suppose the Chinese demand in million metric ton, or MMT) for US soybeans is captured by the following demand curve Qo-60-0.05P the domestic demand curve for soybeans is QD- 50 0.02P the demand curve for US soybeans in the rest of the world(excluding US and China) is R-40 0.08P The US industrial supply curve of soybean production is MC 3000.625Q where unit of P and MC is metric ton

Explanation / Answer

a) Before tarriff gets imposed the total demand faced by US soybean farmers is summation of domestic demand, chinese demand and demand from rest of world.

Demand = QC+ QD+QR

Q = 60 - 0.05P + 50 - 0.02P + 40 - 0.08P

Q = 150 - 0.15P

b) If China impose tarriff then demand from china will change as follows :

QC = 60 - 0.05(1.25P)

Now Total Demand: Q = 60 - 0.0625P + 50 - 0.02P + 40 - 0.08P = 150 - 0.1625P

or P = 923.07 - Q/0.1625 .... eq 1

c) After tarriff:

MC = 300 + 0.625Q

and MR = dTR/dQ = d(P*Q)/dQ = d(923.0Q7 - Q2/0.1625)/dQ see eq i

MR = 923.07 - 12.307Q

Put MR = MC

923.07 - 12.307Q = 300 + 0.625Q

Q = 32.79

And Before Tarriff Q = Q = 150 - 0.15P or P =1000 - Q/0.15

MR = 1000 - 13.33Q

Now MR = MC

1000 - 13.33Q = 300 + 0.625Q

Q = 50.161

You can see that the demand has decreased because of tarriff from around 50 tons to around 33 tons. Thus the ssuppliers will now redeuce their production and supply ofsoybeans by 50-33 = 17 tons approx. or 33/50 * 100 = 66%

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