Evaluate the welfare effects of a tariff levied by a small country on imports of bourbon.

a)Using the standard chart for analyzing the economic effects of a tariff, show the home supply and demand curves for bourbon.Before opening to trade, show the equilibrium price and quantity of bourbon.Call these PA and QA, where A signifies "Autarky").

b)Assume the world price of bourbon (PW) is below the home price before trade (PW < PA).Show the quantity demanded (D1), quantity supplied (S1), and amount of imports.

c)Since excessive drinking can harm members of society in many ways, we have an example of a negative externality. That is, the social benefits of drinking < private benefits of drinking (so there are costs to society from excessive drinking).Let the harm done to members of society other than the drinker per bottle of bourbon be H. (That is, the difference between the private benefit and social benefit = H.)What is the harm done to society from excessive drinking?In your answer, be sure to label various areas in your chart in stating your answer.

d)There are various policies the government could undertake to deal with this negative externality. Assume the country imposes a tariff equal to the harm done per bottle.With this tariff, show the quantity demanded (DT, where T signifies with the tariff), quantity supplied (ST), domestic price (including the tariff, PT), and the amount of imports.

e)On your graph (labeling various areas of the chart), show the effect of the tariff on the economy (consumers, producers, government, and society).What is the net gain to the country?

f)Based on your answers, would you recommend this policy?Why or why not?

g)What other policy could the government choose?Discuss the effects.How does this policy compare to the tariff policy?