According to Chinese government statistics, China imported 140,000 sedans in 2007.

Let’s see what would happen to consumer and producer surplus if China were to ban sedan imports. To keep things simple, let’s assume that if sedan imports were banned, the equilibrium price of sedans (holding quality constant!) would rise by $5,000.

a. In the figure below, shade the area that represents the total gains when sedan imports are allowed into China. pg69

b. Once China bans the import of sedans, what is the dollar value of the lost gains from trade? (Hint: The chapter provides the formula.)

c. If sedan imports are banned, Chinese sedan producers will be better off and Chinese sedan consumers will be worse off. A polygon in the figure shows the surplus that will shift from consumers to producers.
Write the word “transfer” in this polygon.
(Hint: It’s not the area you calculated in part b.)

Transcribed Image Text:

Price per midsized sedan Domestic supply of sedans $35,000 $30,000 140,000 World sedan supply Domestic demand imported sedans for sedans Quantity of midsized sedans