South Korea is one of the main beef importing countries. Without international trade, Korea’s equilibrium price for the beef was $10 million per kilo tonne and equilibrium quantity was 30 kilo tonne. When Korea opens its market to international trade with no tariff, domestic supply would be 10 kilo tonne and domestic demand would be 50 kilo tonne at the world price of $5 million per kilo tonne. Though, Korea presently imposes 40 % tariff rate on all imported beef. With 40 % tariff, Korea’s domestic supply and domestic demand are 20 kilo tonne and 40 kilo tonne correspondingly. Suppose that the intercept of supply curve is $3 million and demand curve is $15 million per kilo tonne.
Q1. Draw a graph to analyze the results of 40 % tariff rate in Korea on the price, domestic supply of and demand for beef, and compare the condition with no tariff case.
Q2. Use the graph to recognize and describe the gains and losses from trade with 40 % tariff rate, the tariff revenue and deadweight loss.
Q3. Compute the values of change in consumer surplus, producer surplus, tariff revenue and the quantity of deadweight loss. Show your computation.
Q4. Assume that Korea doesn’t impose tariff any more but rather imposes an import quota of 20 kilo tonne. Describe what happens to beef price, demand and supply, and the beef imports in Korea. As well, draw a graph to recognize and describe the gains and losses from the import quota and the importer’s profit and the deadweight loss.