The United States has historically imposed import tariffs on tobacco. Let’s take a look at how these tariffs impact the market for tobacco. The domestic supply and domestic demand for tobacco are illustrated by the graph below.

a. Use the letters and values in the graph to fill in the following table, comparing the outcomes of free trade and restricted trade. 

b. If the government decides to replace the tariff with a quota that will have the same effect on the market as the tariff, the quota should restrict imports to what quantity?  

Transcribed Image Text:

Price P4 P3 P₂ N P₁ P O A B C D R L E F M S GH JK N T U Domestic supply World price plus tariff World price Domestic demand Q₁ Q₂ Q3 Q4 Q5 Quantity of tobacco Stevenson/Wolfers, Principles of Economics, 1e, 2020 Worth Publishers