Question 2 (31 points): Suppose that the equilibrium price of huckleberries is $60/lb in Sweden. Sweden can import huckleberries from the US at $40/lb and from Chile at $30/1b. Suppose Sweden is too small to affect prices in the US and Chile. Initially Sweden imposes a non-discriminatory tariff of $20/lb on its imports of huckleberries from the US and Chile. Given this information, answer the following questions: Panel A: Sweden free trade Panel B: Sweden customs union with the US Panel C: Sweden customs union with Chile Price Xi X Qty 10 Qty 2.1 (3 points) In Panel A, draw the price at which Sweden can import huckleberries from the US and label it Pus. Draw the price at which Sweden can import huckleberries from Chile and label it Pc. If there were free trade, would Sweden produce huckleberries domestically, import them from the US, or import them from Chile? Why? In this case the price of huckleberries from us is $40/ 16 and from chile at$30/b, sweden will import huckleberries from chile $30/ 1b. 2.2 (3 points) With a non-discriminatory tariff of $20/lb on imports from all countries, which us 60 country would Sweden import huckleberries from, how many lbs of huckleberries would Sweden Chile 50 import and what is the domestic price of huckleberries in Sweden? Country of origin for imports: Quantity of imports: Domestic price of huckleberries in Sweden: 2.3 (3 points) If Sweden forms a customs union with the US and keeps the tariff for Chile, will Sweden produce huckleberries domestically or import them from the US or Chile? Why? 2.4 (3 points) Is the customs union that Sweden forms with the US trade creating or trade diverting? Why? 2.5 (5 points) Show the effect of the customs union between Sweden and the US as compared to the situation with the tariff. In Panel B, use letters to define the following areas, and also calculate the dollar amounts: Change in consumer surplus: Change in producer surplus: Change in government revenue: Change in social welfare: 2.6 (3 points) Now suppose that Sweden were to form a customs union with Chile and keep the tariff for the US. Would this customs union be trade creating or trade diverting? Why? 2.7 (5 points) Show the effect of the customs union between Sweden and Chile as compared to the situation with the tariff. In Panel C, use letters to define the following areas, and also calculate the dollar amounts: Change in consumer surplus: Change in producer surplus: Change in government revenue: Change in social welfare