International Trade Theory and Policy
by Steven M. Suranovic

Trade 90

Trade 90

Trade Problem Set 90 2-6

1.   Consider the following partial equilibrium diagram depicting the market for radios in Portugal, a small importing country. Suppose PFT is the free trade price, PT is the price in the Portugal when a tariff is in place.  Answer the following questions by referring to the diagram.  Assume the letters, A, B, C, D, E, refer to areas on the graph.  The letters v, w, x and y refer to lengths.   (be sure to include the direction of changes by indicating “+” or “-“ )   

Diagram 90-2-6

A. Where on the graph is the level of imports in free trade? 

 

B. Which area(s) represent the level of consumer surplus in free trade?

 

C. Which area(s) represent the level of producer surplus in free trade?

 

D. Where on the graph is the size of the tariff depicted?

 

E. Where on the graph is the level of imports after the tariff  depicted? 
 

 

F. Which area(s) represent the tariff revenue collected by the importing government with the tariff in place? 

 

G. Which area(s) represent the change (+/-) in consumer surplus when the tariff is applied?

 

H. Which area(s) represent the change (+/-) in producer surplus when the tariff is applied?

 

I. Which area(s) represent the change (+/-) in national welfare when the tariff is applied?

 

J. Which area(s) represent the efficiency losses that arise with the tariff?

 

 

International Trade Theory and Policy - Chapter 90: Last Updated on 3/07/08