In: Economics
Using a market graph similar to what is was presented in the course materials, draw a graph showing how a tariff on clothing produces the following results (Hint: draw the graph large enough to incorporate labels for free trade and the impact of the tariff):
-Draw your own graph on a piece of paper
Before tariff: Free trade
The price is P1. Domestic quantity supplied is Q1 and quantity demanded is Q4. This implies that imports are Q4-Q1. Producer surplus is G and consumer surplus is A + B + F + D + C + E. Total surplus is A + B + C + D + E + F + G.
After tariff: Now a tariff of P2-P1 is placed
The price is P2. Domestic quantity supplied is Q2 and quantity demanded is Q3. This implies that imports are Q3-Q2. Producer surplus is G + F and consumer surplus is A + B. Total surplus is A + B + C + F + G
Result