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Suppose in the US there is a competitive market in soy beans that is open to world trade at a world price that leads to consumers purchasing imports from abroad.
(a) Depict this situation graphically.
(b) Suppose that the US decides to impose a tariff on imported soybeans, in order to aid domestic soy bean producers. Show graphically how much domestic producers will benefit from this policy.
(c) In addition to aiding domestic producers, this policy will raise tariff revenue for the government, show the part on your graph; explain why, despite the gains to domestic producers and benefits to the government tax revenue, the tariff reduces overall welfare.
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