(Answered) 1. Welfare effects of free trade in an exporting countryThe following problem analyzes the Russian…

1. Welfare effects of free trade in an exporting country
The following problem analyzes the Russian market for pumpkins. The graph below shows the domestic supply and demand curves for pumpkins in Russia. Assume that Russia’s government does not currently permit international trade in pumpkins. Use the black point (plus symbol) to denote the equilibrium price of one ton of pumpkins and the equilibrium quantity of pumpkins in Russia without international trade. Next, use the green triangle (triangle symbol) to shade in the area that represents consumer surplus in equilibrium. Finally, use the purple triangle (diamond symbol) to shade in the area that represents producer surplus in equilibrium. Based on the information from the previous graph, absent international trade total surplus is
The following graph shows the same domestic supply and demand curves for pumpkins in Russia. Now, suppose that the Russian government changes its stance on international trade, deciding to allow free trade in pumpkins. The horizontal black line (P
W
) represents the world price of pumpkins at $1,000 per ton. Assume that Russia’s entry into the world market for pumpkins has no effect on the world price and there are no transportation or transaction costs associated with international trade in pumpkins. 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 in the area representing consumer surplus, and then use the purple triangle (diamond symbol) to shade in the area representing producer surplus.
When Russia adjusts its trade policy to allow free trade of pumpkins, the price of one ton of pumpkins in Russia becomes $1,000. At this price, _____ tons of pumpkins will be demanded in Russia, _____ tons will be supplied by domestic suppliers. Therefore, Russia will export _____ tons of pumpkins.
Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade.
With Free Trade (Dollars)
Without Free Trade (Dollars)
Consumer Surplus
Producer Surplus
When Russia allows free trade, the country’s producer surplus _____ by _____, and consumer surplus by _____ . Therefore, the net effect of allowing international trade on Russia’s total surplus is a _____ of