Questions: Complete the following table to summarize your results from the previous two graphs. With Free Trade (Dollars) With a Tariff (Dollars) Consumer Surplus Producer Surplus Government Revenue 0

Complete the following table to summarize your results from the previous two graphs.

With Free Trade
(Dollars)

With a Tariff
(Dollars)

Consumer Surplus
Producer Surplus

Government Revenue
0

Transcript text: Complete the following table to summarize your results from the previous two graphs. With Free Trade (Dollars) With a Tariff (Dollars) Consumer Surplus Producer Surplus Government Revenue 0

Solution

Solution Steps

Step 1: Identify Key Points on the Graph

Domestic Demand and Supply Curves: Identify where the domestic demand and supply curves intersect with the price lines.
World Price (Pw): The horizontal line at the world price level.
World Price Plus Tariff: The horizontal line above the world price, indicating the price with the tariff.

Step 2: Calculate Consumer Surplus (CS) with Free Trade

Consumer Surplus (CS): The area between the domestic demand curve and the world price line (Pw).
Formula: CS = 0.5 * base * height
Base: Quantity at Pw (40 tons)
Height: Difference between the highest price consumers are willing to pay (490) and Pw (370)
Calculation: CS = 0.5 * 40 * (490 - 370) = 0.5 * 40 * 120 = 2400

Step 3: Calculate Producer Surplus (PS) with Free Trade

Producer Surplus (PS): The area between the domestic supply curve and the world price line (Pw).
Formula: PS = 0.5 * base * height
Base: Quantity at Pw (10 tons)
Height: Difference between Pw (370) and the lowest price producers are willing to accept (290)
Calculation: PS = 0.5 * 10 * (370 - 290) = 0.5 * 10 * 80 = 400