5. The following diagram shows the domestic demand and domestic supply curves in a market. Suppose the
Question:
5. The following diagram shows the domestic demand and domestic supply curves in a market. Suppose the world price in this market is $2. Assume the country allows free trade.
a. Does this country import or export? How much?
b. Who does free trade benefit? Quantify this using consumer or producer surplus. Explain
c. Who does free trade harm? Quantify this using consumer or producer surplus. Explain.
d. Overall, does this benefit or harm society? How do we quantify this?
Now suppose that the domestic government chooses to impose a $1 tariff on imports.
e. Who is this tax meant to benefit? Quantify this using consumer or producer surplus. Explain. f. What is the tariff revenue collected by the government?
g. Overall, does this tariff benefit or harm society? How do we quantify this?
h. Beyond the direct effects determined above and using the current US steel tariffs, discuss 2 -3 indirect effects on the economy. That is, discuss how tariffs on steel can effect economic choices and wellbeing outside of the steel market.