Suppose the figure above represents the US market

2. For the following questions, refer to the figure below:Suppose the figure above represents the US market for product X (the horizontal axis in thefigure shows the quantity of product X demanded and supplied in the US market) .i) What is the price of X under free trade? In the figure above, the US has imposed a tariff(denoted by t) of what size? Is the US a small or a large country in the market for productX?Under free trade, Product X is $16. The US has imposed a tariff of $6.ii) What happens to the quantity of imports of X to the US as the tariff is imposed (howmuch do the import increase or decrease)? Is the world price of X affected?Imports decline from 16 to 8. The world price increases from $16 to $22.iii) Who gains and who loses from the tariff in the US? Give the size of the gains and lossesas accurately as possible.Is the US better off or worse off as a consequence of the tariff (consider the net effect on theeconomy)? Explain.iv) Considering the impact of the tariff on the US economy, why might the tariff be imposedin the first place?v) Are there any alternative policies that could be used to attain the goals of part iv)? Arethese policies more or less costly for the US economy (in terms of the deadweight losscreated by the policy)? Explain.

 

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