Trade Problem Set 90 2-10

1. Consider the following partial equilibrium diagram depicting two countries, China and the US, trading a product with each other. Suppose PFT is the free trade price, PUS is the price in the US when a tariff is in place, and PC is the price in China when a tariff is in place. Answer the following questions by referring to the diagram. Assume the letters, A, B, C, D, E, F, G, H , I and J refer to areas on the graph. The letters v, w, x, y, and z refer to lengths.

A. Which country is the exporter of the product?
B. Where on the graph is the level of imports depicted with the tariff in place?
C. Which areas on the graph represent the change in consumer surplus for the importing country if the tariff is removed? (include the sign)
D. Which areas represent the tariff revenue lost by the importing government?
E. Which areas represent the net national welfare effect from the tariff elimination by the importing country?
F. Which areas represent the net national welfare effect from the tariff elimination in the exporting country?
G. Which areas represent the world welfare effects from the tariff elimination?

International Trade Theory and Policy - Chapter 90: Last Updated on 3/28/08