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1. The graph illustrates the introduction of an import tariff for a good. Based on it, answer questions A-D below. Price Domestic demand (D) Domestic
1. The graph illustrates the introduction of an import tariff for a good. Based on it, answer questions A-D below. Price Domestic demand (D) Domestic supply (S) World supply after tarif PT lupart tarify pw susny before tariff Quantity A. Without tariff, what is the amount of the good consumed by domestic consumers? The amount of the good supplied by domestic suppliers? The amount of imports? B. After tariff, what is the amount of the good consumed by domestic consumers? The amount of the good supplied by domestic suppliers? The amount of imports? C. Identify in the graph and briefly explain in words the following effects of the tariff (please clearly label on the graph above or draw it again with your own annotation): a. The consumers' loss b. The domestic producers' gain c. Government tariff revenue d. Net deadweight loss for the economy as a whole [Please ignore the possible problems with the extra producer profits when answering part d. here - see question D] D. Continuing from question C, what would you expect the impact of this tariff and extra profits of the producers in import-competing sectors on the rest of the economy? How does this affect the calculation of the deadweight loss above? [Hint: Among other things, you may want to consider the effect on the allocation of entrepreneurial activity across various economic activities, the impact on input prices (if the protected good is an intermediate input, such as steel), the effect of government tariff protection on producers' incentives and so on. And while you are considering all this, think which part of the graph above may need to be drawn differently to account for those extra costs
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