Problem

Suppose a country imposes a tariff on coffee imports. Using the diagram of supply and demand in Figure 17P-4 identify the correct shaded areas as follows.

a. In autarky, which area(s) comprise domestic consumer surplus? Which area(s) comprise domestic producer surplus?

b. When the country opens up to trade, which area(s) do consumers gain as surplus? Which area(s) do producers lose?

c. After trade, if an import tariff is imposed, which area(s) do domestic producers gain as surplus? Which do domestic consumers lose?

d. With the tariff, which area is government revenue?

e. Which area(s) represent deadweight loss as a result of the tariff?

f. If the country uses an import quota instead of a tariff, what is the quota quantity if the quota price is $7?