Consider the market for paint as described in Question 7.2. As before the world price for paint is $8. This question examines the effect of introducing a tariff.

a. Create a spreadsheet as in Question 7.2 with columns for price (p), domestic quantity demanded (D), domestic quantity supplied (S), imports (M), consumer surplus (CS), producer surplus (PS), and total surplus (TS). Let the price increase from $4 to $28 in increments of $1. Fill in the spreadsheet.

b. Suppose the domestic government imposes a tariff of $2 per gallon on any imported paint. Use your spreadsheet to identify the domestic price, domestic consumption, domestic production, and the amount of imports. Also determine the consumer surplus, producer surplus, total surplus, and dead-weight loss. How does this equilibrium differ from the equilibrium in part d of Question 17.2, where there is a quota of 3 and no tariff?

c. Suppose now that the domestic government raises the tariff from $2 to $3 per gallon. Determine the domestic price, consumption, production, amount of imports, consumer surplus, producer surplus, and dead-weight loss in this case.

Question 7.2

The domestic demand and supply functions for a particular type of latex paint are Q_d = 14 ˆ’ 0.5p and Q_s = ˆ’4 + p, respectively. The price is measured in dollars per gallon and the quantities are measured in millions of gallons. The world price for the paint is pˆ— = $8, at which the foreign producers are willing to sell unlimited quantities.