The figure below describes the Laotian market for cheese where free trade is allowed. Suppose the world price of cheese is $6 and that Laos imposes an import tariff of $2 per pound on foreign cheese. Move the price line to describe the new price with the tariff and also modify the consumer (blue triangle) and producer (green triangle) surplus areas to describe the new welfare situation. Note that after your placements, point A should remain in the lower left corner of the consumer surplus area, and point B in the lower left corner of the producer surplus area.

 

Laotian Market for Cheese Domestic Supply 180 16 14 12 10 8 A. 4 20 Domestic Demand 4 8 12 16 20 24 28 32 36 40 Quantity of cheese (millions of pounds) Price of cheese ($ per pound) 20