Question: A certain developing country currently imports all its wheat, but is considering funding an irrigation project that would allow domestic farmers to grow and sell

A certain developing country currently imports all its wheat, but is considering funding an irrigation project that would allow domestic farmers to grow and sell wheat. The domestically grown wheat would be sold in competitive markets at an estimated price of 15 dubyas per bushel. The wheat the nation currently imports has a CIF price of $3US per bushel. The official is 4 dubyas per dollar. The nation’s tariff on imported wheat is 2 dubyas per bushel. Transportation and charges from the port to a typical market are 2 dubyas and 1 dubya per bushel respectively. The accounting price ratio has been estimated to be .6 for transportation and .8 for Calculate the market price of imported wheat.
b. Calculated the shadow price of imported wheat.
c. Should the irrigation project proceed?

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a As the exchange rate is 4 dubyas per dollar the CIF price in dubyas is 3 x 4 12 The market price ... View full answer

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