The following graph again show, the domestic demand and domestic supply curves f

Question

The following graph again show, the domestic demand and domestic supply curves for soybeans in Venezuela. Suppose that the Venezueian government changes its international trade policy and Venezuela now allows free trade in soybeans. The world price of soybean, $240 per ton, as shown by the horizontal dashed line. Assume that Venezuela's entry into the world market for soybeans has no effect on the world price and there are no transportation or transaction costs associated with international trade in soybeans. Also assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. When free trade in soybeans is allowed, the price of a ton of soybeans in venezuela will be At this price, tons of soybeans will be demanded in Venezuela, and tons will be supplied by domestic suppliers. Therefore, Venezuela will import tons of soybeans.

Explanation / Answer

As mentioned Venezuela does not affect world price, with free trade, price of a ton of Soyabean in Venezuela will be $240 as if domestic producers raise their price, people will import it from outside.

We can see corresponding to $240, demand is 24 tons and supply is 6 tons. Therefore Venezuela will import the rest (24-6)=18 tons

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