Question

Tariffs

1. Set up the basic Supply/Demand Framework: Label axes and curves

2. Show the market at initial equilibrium (label Equilibrium price and quantity)

3. For Tariffs…

a. Label market “Tariff”

b. Draw in a new supply curve to demonstrate the effect of the tariff (label this S2)

c. At the initial equilibrium price, is there now a shortage or surplus?________ Circle this area on the graph.

d. What kind of pressure does this intermediate disequilibrium put on the price? ____________

e. Indicate the new price for the good: Label “Pt”

f. Indicate the new quantity exchanged in the market place: label “Qt”

g. Circle the new price and quantity bought and sold of this good

h. Shade in the area in the graph that represents reductions in gains from trade from the protectionist trade policy

Answer 1