When New Zealand allows free trade of lemons, the price of a ton of lemons in New Zealand will be $800. At this price, 400,000 tons of lemons will be demanded in New Zealand, and 100,000 tons will be supplied by domestic suppliers. Therefore, New Zealand will import 300,000

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Chapter9: Application: International Trade
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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 the free trade of 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 point (triangle symbol) to shade consumer surplus, and then use the purple point (diamond symbol) to shade producer surplus.
PRICE (Dollars per tons)
1360
Domestic Demand
Domestic Supply
1290
1220
1150
1080
1010
940
870
800
730
PW
660
0 50
100 150 200 250 300 350 400
QUANTITY (Thousands of tons of lemons)
450
500
Consumer Surplus
Producer Surplus
tons of lemons
When New Zealand allows free trade of lemons, the price of a ton of lemons in New Zealand will be $800. At this price, 400,000
will be demanded in New Zealand, and 100,000 tons will be supplied by domestic suppliers. Therefore, New Zealand will import 300,000
tons of lemons.
Transcribed Image Text: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 the free trade of 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 point (triangle symbol) to shade consumer surplus, and then use the purple point (diamond symbol) to shade producer surplus. PRICE (Dollars per tons) 1360 Domestic Demand Domestic Supply 1290 1220 1150 1080 1010 940 870 800 730 PW 660 0 50 100 150 200 250 300 350 400 QUANTITY (Thousands of tons of lemons) 450 500 Consumer Surplus Producer Surplus tons of lemons When New Zealand allows free trade of lemons, the price of a ton of lemons in New Zealand will be $800. At this price, 400,000 will be demanded in New Zealand, and 100,000 tons will be supplied by domestic suppliers. Therefore, New Zealand will import 300,000 tons of lemons.
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