Reference no: EM13156657
Introduction: Suppose that the U.S. currently buys and produces wingdings, a fictitious economic good. The U.S. faces the world price, and domestic suppliers sell as many
wingdings as possible at the world price. Now, the government succumbs to lobbying by wingding producers and imposes a protective tariff on wingdings amounting to $2 per wingding. The graph below represents this situation.
World Price
World Price + Tariff
U.S. Supply
U.S. Demand
Price
Quantity (millions of pounds)
6 12 16 18 26
6
8
10
4
Answer the following questions. Use formulas and show calculations as well as final answers.
A. Does the United States have a comparative advantage in wingdings? Explain.
B. Discuss the effect of the tariff on the number of imports..
C. How did the imposition of the tariff change consumer surplus?
D. How did the imposition of the tariff change producer surplus?
E. What is the overall result of the tariff in terms of welfare?
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