Question

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 = 115 – 1/15Q Supply: P = 55 + 1/15Q Where P is Yuan per bushel of soybeans and Q is 10 million bushels per year. The world price for soybeans is ¥65/bushel.

4. Who are the greatest benefactors of China’s tariff on US soybeans?

Answer 1

At equilibrium before trade,

Demand = Supply

115 - Q/15 = 55 + Q/15

60 = 2Q/15

Q* = 450

P* = Y 85

World price = Y 65

Since world price is less than domestic price, China will import soyabeans

However, if it imposes tariffs on US imports, it will raise price of US imported soyabean, thereby reducing its demand

People will then prefer buying domestic soyabean over expensive imported soyabean

Thus, producers of Chinese soyabean would be most benefitted from this tariff, as their demand and sales will increase.