Give step-by-step solution with explanation and final answer:The following graph shows the domestic supply of and demand for maize In Panama. Panama is open to International trade of maize without any

Question

Give step-by-step solution with explanation and final answer:The following graph shows the domestic supply of and demand for maize In Panama. Panama is open to International trade of maize without any
restrictions. The world price (Py) of maize is $240 per ton and is represented by the horizontal black line. Throughout this problem, assume that the
amount demanded by any one country does not affect the world price of maize and that there are no transportation or transaction costs associated
with International trade In maize. Also, assume that domestic suppliers wil satisfy domestic demand as much as possible before any exporting or
importing takes place.
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
Note: Once you enter a value In a white field, the graph and any corresponding amounts In each grey fleld will change accordingly.
Graph Input Tool ®
P. Market for Maize in Panama
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Supp "Price 380
wo " id (Oollers per tory | 380)
- Domestic Demand Domestic Supply
5 mo H ! (Thousands of tons 80 (housands of tons 320
IH 1 1 of maize) of maize)
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VIPSolutions · Accepted Answer

Let's solve the questions step by step based on the provided graph and information:

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### 1. **If Panama is open to international trade of maize without any restrictions, it will import _______ tons of maize.**

**Step 1: Identify the world price ($P_W$)**
- The world price ($P_W$) is **$240 per ton** (horizontal black line).

**Step 2: Find Domestic Demand and Supply at $P_W$**
- At $P_W = $240$:
  - **Domestic Demand**: Find where the demand curve meets $240. Looking at the graph, it's at **360,000 tons**.
  - **Domestic Supply**: Find where the supply curve meets $240. It's at **40,000 tons**.

**Step 3: Calculate Imports**
- Imports = Domestic Demand − Domestic Supply
- Imports = **360,000 − 40,000 = 320,000 tons**

**Final Answer:**
> If Panama is open to international trade of maize without any restrictions, it will import **320,000 tons** of maize.

---

### 2. **Suppose the Panamanian government wants to reduce imports to exactly 80,000 tons. A tariff of $_____ per ton will achieve this.**

**Step 1: Set Up Equation**
- With a tariff, the domestic price will rise above the world price.
- Let the new domestic price be $P_T$.
- At $P_T$, Imports = Domestic Demand at $P_T$ − Domestic Supply at $P_T$ = 80,000 tons.

**Step 2: Use the Graph**
- Find the price where the horizontal distance between demand and supply curves is **80,000 tons**.
- At **$320 per ton**:
  - Domestic Demand: **200,000 tons**
  - Domestic Supply: **120,000 tons**
  - Imports: $200,000 - 120,000 = 80,000$ tons

**Step 3: Calculate Tariff**
- Tariff = New Domestic Price − World Price = $320 − $240 = **$80 per ton**

**Final Answer:**
> A tariff of **$80 per ton** will achieve this.

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### 3. **A tariff set at this level would raise $______ in revenue for the Panamanian government.**

**Step 1: Calculate Tariff Revenue**
- Revenue = Tariff × Imports
- Revenue = $80 × 80,000 = **$6,400,000**

**Final Answer:**
> A tariff set at this level would raise **$6,400,000** in revenue for the Panamanian government.

---

## **Summary Table of Answers**

| Question                                                                 | Answer                |
|--------------------------------------------------------------------------|-----------------------|
| If Panama is open to trade, it will import _______ tons of maize.        | 320,000               |
| A tariff of $______ per ton will reduce imports to 80,000 tons.          | 80                    |
| Tariff revenue at this level would be $______                            | 6,400,000             |

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