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5. Effects of a tariff Suppose the following graph shows the annual domestic market for cheese in Algeria, which is a producer as well as
5. Effects of a tariff Suppose the following graph shows the annual domestic market for cheese in Algeria, which is a producer as well as an importer of cheese. The free- trade world price of cheese is PW per ton. @ 1400 1300 E 1200 Price with Tariff 1100 'E 1000 2 . \\ Tariff Revenue 3 900 E g 800 . O D 00 v 7 . (Lg Change In PS E 600 'L I 500 400 DWI- 300 - 200 :l l l | l l | l l | l l | 0 1 2 3 4 5 6 7 8 9 10 1'] 12 QUANTITY (Millions of tons per year) With free trade, the price of cheese in Algeria would be :l per ton. Algeria would produce C] million tons of cheese per year and import |:] million tons per year. Suppose Algeria's government imposes a 50% tariff on cheese imports. Assume the tariff does not influence the world price of cheese. On the preceding graph, use the black line (plus symbol) to show the world supply of cheese with the tariff. The tariff V Algeria's production of cheese by C] million tons per year, V its domestic consumption by |:] million tons per year, and Y its imports by C] million tons per year. On the preceding graph, use the purple point (diamond symbol) to shade the area that represents the change in the producer surplus resulting from the tariff. Use the black points to shade the area, or areas if there are more than one on the graph, that together represent the deadweight loss resulting from the tariff. Then use the green quadrilateral (triangle symbols) to shade the area that represents tariff revenue. Note: Select and drag a fill area point from the palette to the graph. To fill in regions on the graph, merely drop the fill area point on the desired region. Fill in the blank cells in the following table to summarize the effects of the tariff on Algeria's welfare. (Hint: The area of each shaded region on the graph can be found by clicking on the polygon.) Amount of Change Change In... Gain or Loss (Millions) Tariff revenue L : Producer surplus L : Consumer surplus L |:| Change in total welfare L
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