Home Tools assignment_4_sol... assignment_5_sol... assignment_4.pdf x (? Sign In 2 / 3 + 75% X 2. Washer tariffs (25 points) In January 2018, the White House announced that it would take safeguard action after the USITC determined that a surge of washing-machine imports was harming the domestic industry. President Trump announced 20% tariff on the first 1.2 million imported washers and a 50% import tax rate for additional washers imported in 2018. At the time, a South Korean report said that LG "was planning to raise prices of its washing machines in the United States by about 4-8 percent in March." Goldman Sachs forecast "an 8 percent to 20 percent increase in the price of a new washing machine in the next year." In particular, The Trump administration announced Monday it will impose a 20 percent tariff on the first 1.2 million imported large residential washing machines in the first year and a 50 percent tariff on machines above that number. For his part, Samuel Eisner expects the same level of imports in 2018 as in years past, around 3.4 million washing machines. His assumption implies an effective tariff rate of roughly 40 percent, and if international suppliers pass along half the cost of the tariff, Americans could wind up shelling out a premium. Economist Dani Rodrik tweeted that "if retail prices of washers-dryers increase only by around $50, this will be a big 'net gain' for the US economy." Let's figure out why Rodrik said this. Start from our partial-equilibrium diagram for a small economy that is a price taker. The key ingredients in this model are: domestic demand slopes downward, domestic supply slopes upward, and the world price is below the autarky price. Price t Price D S2 D2 Quantity M2 M1 Imports Imports = M2 Please answer the following questions: a) In this model, by how much should the domestic price of washing machines increase when a 40% tariff is imposed and consumers still import washers? b) In this model, should we expect the same level of imports in 2018 as in years past? c) Now suppose that this economy is "large", which means that its policies can affect the world price of washing machines. That is, international suppliers do not necessarily keep the same world price and simply "pass along" the tariff. What must happen for a 40% tariff to cause an 8% increase in the domestic price of washing machines? to d) Analyze the welfare consequences of a 40% tariff imposed by a large economy that causes an 8% increase in its domestic price of washing machine. Assume the US previously did not tax washer imports and now it charges a 40% tariff. Your diagram should show welfare consequences for consumer surplus, producer surplus, and government revenue. They will show up as triangles, rectangles, and trapezoids. Who wins, who loses, and what is the net effect on welfare? e) Suppose that the 40% effective tariff rate causes the domestic price of washing machines to increase by only 8%. What government actions are necessary for this outcome to be welfare-improving for all US consumers and producers