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Suppose that Congress imposes a tariff on imported automobiles to protect the U.S. auto industry from foreign competition. Assuming that the United States is a price taker in the world auto market, show the following on a diagram: the change in the quantity of imports, the loss to U.S. consumers, the gain to U.S. manufacturers, government revenue, and the deadweight loss associated with the tariff. The loss to consumers can be decomposed into three pieces: a gain to domestic producers, revenue for the government, and a deadweight loss. Use your diagram to identify these three pieces.
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Chapter 9
Application: International Trade
Introduction
The Data of Macroeconomics
The Macroeconomics of Open Economies
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Suppose that Congress impo…
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The accompanying diagram i…
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The following graph shows …
This graph shows the impact of a tariff on imported Auto Mobile without the tariff. The price of an auto is P W in red. The quantity produced in the United States is Q one s okay. The quantity purchased in the United States is Q one D, and the important value is Q one D minus. Q one s. The imposition of the tariff raises the price of autos to P W plus T, causing an increase in quantity supplied by US producers to Q two s and a decline in the quantity demanded to kill two d. This reduces the number of imports to Q two D minus. Q two s So this is this'll distance represent imports after tariff, and this is imports of the U. S. Before tariff. Yeah, the imposition of tariff change, consumer surplus, producer surplus government revenue and total surplus before tariff. Consumer simples is the sum of the area a be see de e and F after tariff. Consumer surplus is on Lee the sum of A and B. So the change is yeah, the subtraction of C, D E and F four producer surplus before tariff producer surplus is area G after tariff, these areas increases to C plus G, so the change to producer surplus is an increase of C okay before tariff. Government revenue is zero, but after tariff government revenue can be represented by a rectangular E. That is an increase off e and total surplus is the sum of consumer surplus, producer surplus and government revenue. Okay, so before tariff, it is the sum of all the areas from A to G and after tariff total surplus experienced a decrease of de and F. We can say that the loss of consumer surplus in the amount C plus de plus E plus f is split up as follows, see goes to producers. He goes to the government and d plus f is dead weight loss.
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