# 1. Welfare effects of free trade in an exporting country Consider the Sudanese market for tangerines....

1. Welfare effects of free trade in an exporting country Consider the Sudanese market for tangerines. The following graph shows the domestic demand and domestic supply curves for tangerines in Sudan Suppose Sudan's government currently does not allow international trade in tangerines. Use the black point (plus symbol) to indicate the equilibrium price of a ton of tangerines and the equilibrum quantity of tangences in Sudan in the absence of international trade. Then, use the green triangle (triangle symbol to shade the area representing consumer Surplus in equilibrium. Fruly use the purple triangle (diamond symbol) to shade the area representing producer surplus in equilibrium
Domestic Supply thout Trade PRICE (Dolars peton) 0 270 300 300000 120 150 180 210 240 QUANTITY Tons of langerines) Based on the previous oraph, total surplus in the absence of international trade is
The following graph shows the same domestic demand and supply curves for tangerines in Sudan. Suppose that the Sudanese government change International trade policy to allow free trade in tangerines. The horizontal blackline (Pw represents the world price of tangerines at 500 perton Assume that Sudan's entry into the world market for tangerines has no effect on the world price and there are no transportation or transaction costs associated with international trade in tangerines. 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 targew ond bold to shade producer Domestic Demand Domestic Supply
Use the green thangle (trangle symbol) to shade consumer surplus, and then use the purple triangle (diamond symbol) to shade producer surplus Domestic Demand Domestic Supply Surplus Producer Surplus PRICE (Dollars perton) 0 250 300 1080 DO 120 150 180 210 240 QUANTITY (Tons of tangerines)
When Sudan allows free trade of tangerines, the price of a ton of tangerines in Sudan will be \$500. At this price, tangerines will be demanded in Sudan, and tors will be supplied by domestic suppliers. Therefore, Sudan will export tons of tangerines. Using the information from the pravious tasks, complete the following table to analyze the weare effect of allowing free trade Without Free Trade (Dollars) with Free Trade (Dollars) Consumer Surplus Producer Surplus and producer surplus When Sudan allows tree trade, the country's consumer surplus So, the net effect of international trade on Sudan's total surplussa

Without trade, trade is occurring where demand equals supply at point E. At this point, 150 units are traded and price is \$460.

Consumer surplus without trade is sum of area of portion A+B+C whose sum is (1/2) * (150 - 0) * (660 - 460) = 15,000

Producer surplus without trade is sum of area of portion D+O whose sum is (1/2) * (150 - 0) * (460 - 260) = 15,000

Total surplus without trade = Consumer surplus + Producer surplus = 15,000 + 15,000 = 30,000

After trade, price changes to \$500,

At \$500, quantity demanded is 120 units while quantity supplied is 180 units. Thus exports = Quantity supplied - Quantity demanded = 180 - 120 = 60

Consumer surplus after trade is area of portion A whose sum is (1/2) * (120 - 0) * (660 - 500) = 9,600

Producer surplus after trade is B + C + O + D + F whose sum is (1/2) * (180 - 0) * (500 - 260) = 21,600

Total surplus after trade = 9,600 + 21,600 = 31,200

When Sudan allows free trade, consumer surplus falls by 5,400 and producer surplus rises by 6,600. Net effect of total surplus is 1,200.

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