Question

 The following graph shows the domestic demand and domestic supply curves for lemons in New Zealand. Suppose New Zealand's government currently does not allow international trade in lemons

 Use the black point (plus symbol) to indicate the equilibrium price of a ton of lemons and the equilibrium quantity of lemons in New Zealand in the absence of international trade. Then, use the green triangle (triangle symbol) to shade the area representing consumer surplus in equilibrium. Finally, use the purple triangle (diamond symbol) to shade the area representing producer surplus in equilibrium.

 Based on the previous graph, total surplus in the absence of international trade is _______ .

 The following graph shows the same domestic demand and supply curves for lemons in New Zealand. Suppose that the New Zealand government changes its international trade policy to allow free trade in lemons. The horizontal black line (Pw) represents the world price of lemons at $800 per ton. Assume that New Zealand's entry into the world market for lemons has no effect on the world price and there are no transportation or transaction costs associated with international trade in lemons. Also assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place.

 Use the green triangle (triangle symbol) to shade consumer surplus, and then use the purple triangle (diamond symbol) to shade producer surplus.

 When New Zealand allows free trade of lemons, the price of a ton of lemons in New Zealand will be $800. At this price, _______  tons of lemons will be demanded in New Zealand, and _______  tons will be supplied by domestic suppliers. Therefore, New Zealand will export _______  tons of lemons.

 Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade.

 When New Zealand allows free trade, the country's consumer surplus _______  by _______ , and producer surplus _______  by _______ .So, the net effect of international trade on New Zealand's total surplus is a _______  of _______ .

Answer 1