Recently, China placed tariffs on the importation of US soybeans. Assume that the domestic market for soybeans in China is described by the following equations: Demand: P = 11.5 – Q Supply: P = 5.5 + Q Price is in 10 Yuan (¥) per bushel of soybeans and the units for Quantity are 100 million bushels per year. This is to make graphing simpler. This does NOT mean that the price is 10 and quantity is 100. Rather it means that if the price was 40¥ and the quantity was 7,500,000,000 bushels, this would plot as 4 and 7.5 respectively. The world price for soybeans is ¥65/bushel (this would graph as 6.5).
Graph the soybean market in China showing equilibrium both with no barriers to trade and with a ¥15/bushel tariff. Be sure to fully and clearly label the graph including: Domestic Demand curve (D), Domestic Supply curve (S), the World Price (WP), and the Price with tariffs (PT).
Given the domestic demand equation, P= 11.5-Q, we can calculate the different levels of quantity demanded at different levels of prices.
Plotting the same data gives a downward sloping demand curve.
Given the domestic supply equation , P=5.5+Q, we can calculate the different levels of quantity supplied at different levels of prices.
Plotting the same data gives an upward sloping supply curve.
Given, the world price of 65, we can plot a horizontal line at 6.5 depicting the world price.
Tariff is the price per unit of commodity to enhance the producer surplus area. In the given question, tariff imposed is 15. A line parallel to the world price with a vertical intercept of (6.5+1.5=8), depicts the price with tariff.
Following is the required diagram-
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