The impact of a tariff
To see the Impact of a tariff, consider a hypothetical example of trade in wire hangers between the United States and China. For simplicity, assume that China is the only source of U.S. wire hanger imports. The following graph shows the U.S. market for wire hangers. Note that in the absence of any trade, the market price for hangers in the United States Is $40 per crate, and the equilibrium quantity Is 16,000 crates per week.
When the United States allows free trade in wire hangers with China, the price of hangers in the U.S. market is $20 per crate. At this price, the quantity of hangers supplied by U.S. producers is _______ crates per week; the quantity of hangers demanded by U.S. buyers is _______ crates per week, and the quantity of hangers imported by the United States from China each week is _______ crates of hangers.
Use the green triangle (triangle symbols) to show U.S. consumer surplus under free trade with China, and use the purple triangle (diamond symbols) to show U.S. producer surplus under free trade with China.
Suppose American hanger manufacturers convince the U.S. government that Chinese firms are selling hangers in the U.S. market at well below the cost of producing the hangers, a practice known as _________. In response to the accusations, the U.S. government puts a tariff of $10 per crate on hangers from China. The tariff increases the price of hangers from $20 to $30 per crate, as depicted on the following graph. Under the tariff, the United States' weekly imports of Chinese hangers _______to ________ crates per week.
Use the green triangle (triangle symbols) to shade the area that represents consumer surplus under the tariff, and use the purple triangle (diamond symbols) to shade the area that represents producer surplus under the tariff. Then use the red rectangle (cross symbols) to show the revenue that the U.S. government collects as a result of the tariff. Finally, use the tan triangles (dash symbols) to show the deadweight loss (DWL) from the imposition of the tariff.
As a result of the tariff, government revenues rise by _________________, producer surplus rises by ___________, but consumer surplus declined by ________________.