4. The following questions are about trade and government intervention.

a. How does the relationship between world and domestic price determine whether a country

imports or exports a good?

b. Explain 2 arguments commonly given for restricting trade.

c. If we do decide to restrict trade, who benefits? Who is harmed by restricting trade? Why?

d. Suppose that world price is below domestic price for a good. Draw the graph that depicts

this scenario and label consumer, producer and total surplus.

e. Now suppose that a tariff is placed on that good, such that the world price plus the tariff

is still below the domestic price. Using a supply and demand diagram, label the consumer,

producer, and total surplus. Is society made better off by the tariff? Explain your answer.