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News Analysis: Nailing Down Metal Tariffs Consider a hypothetical example of trade in aluminum between the United States and China. For simplicity, assume that China is the only source of U.S. aluminum imports. The following graph shows the U.S. market for aluminum. Note that in the absence of any trade, the market price for aluminum in the United States is $500 per tonne, and the equilibrium quantity is 150 million tonnes per month. Use the green area (triangle symbol) to show U.S. consumer surplus under free trade with China, and use the purple area (diamond symbol) to show U.S. producer surplus under free trade with China. 1000 Domestic Demand Domestic Supply 4 900 800 Consumer Surplus 700 600 Producer Surplus 500 PRICE (Dollars per tonne) 400 Free Trade Price 300 200 100 0 30 60 90 120 150 180 210 240 270 300News Analysis: Nailing Down Metal Tariffs Use the previous graph to complete the first row of the following table by indicating the quantity of aluminum supplied by U. S. producers, demanded by U.S. consumers, and imported from China under free trade. Quantity Demanded by U.S. Quantity Supplied by U.S. Producers Consumers Quantity Imported from china (Millions of tonnes of aluminum per (Millions of tonnes of aluminum per (Millions of tonnes of aluminum per month) month) month) Free Trade Trade with Ta riff Suppose American aluminum manufacturers convince the U.S. government that Chinese rms are selling aluminum in the U.S. market at well below the cost of producing the aluminum, a practice known as dumping. In response to the accusations, the U.S. government puts a tariff of $100 per tonne on aluminum from China. The tariff increases the price of aluminum from $300 to $ per tonne. Complete the second row of the previous table by indicating the quantity of aluminum supplied by U.S. producers, demanded by U.S. consumers, and imported from China in the presence of a $100-pertonne tariff. 0n the following graph, use the black line ( cross symbol) to indicate the domestic price of aluminum in the presence of a $100-pertonne tariff. Then use the green area (triangle symbol) to shade the area that represents consumer surplus under the tariff, and use the purple area (diamond symbol) to shade the area that represents producer surplus under the tariff. Finally, use the grey rectangle (star symbols) to show the revenue that the U.S. government collects as a result of the tariff, and use the tan triangles (dash symbols) to show the deadweight loss (DWL) from the imposition of the tariff. 1000 Domestic Demand Domestic Supply + 900 Price with Tariff 800 A 700 600 Consumer Surplus 500 PRICE (Dollars per tonne) 400 Producer Surplus Free Trade Price 300 200 Tariff Revenue 100 0 0 30 60 90 120 150 180 210 240 270 300 DWL QUANTITY OF ALUMINUM (Millions of tonnes per month)True or False: According to this model, restricting trade using tariffs helps consumers but harms domestic producers. 0 True 0 False