Attempt 4
International Trade: Work It Out 2
According to Chinese government statistics, China imported over 1 million cars in 2012. Let's see what would happen to consumer and producer surplus if China were to ban car imports. The accompanying diagram represents the market for midsized cars in China. To keep things simple, let's assume that if car imports were banned, the equilibrium price of cars (holding quality constant) would rise by \( \$ 5,000 \).
b. Once China bans the import of cars, what area or areas represent the gains from trade?
B
E
A
C
d. A comparison of the gains from trade in part a to the gains from trade in part b shows a reduction in total surplus, known as the deadweight loss.
c. If car imports are banned, Chinese car producers will be better off and Chinese car consumers will be worse off. A polygon in the figure shows the surplus that will shift from consumers to producers.
D
F
G
