Assume Australia is an importer of sofas and there are no trade restrictions. Australian  consumers buy 1 000 000 sofas per year, of which 450 000 are produced domestically and  550 000 are imported. a Suppose that a technological advance among Swedish sofa manufacturers causes  the world price of sofas to fall by $200. Draw a graph to show how this change affects  the welfare of Australian consumers and Australian producers, and how it affects total  surplus in Australia.

Assume Australia is an importer of sofas and there are no trade restrictions. Australian 
consumers buy 1 000 000 sofas per year, of which 450 000 are produced domestically and 
550 000 are imported.
a Suppose that a technological advance among Swedish sofa manufacturers causes 
the world price of sofas to fall by $200. Draw a graph to show how this change affects 
the welfare of Australian consumers and Australian producers, and how it affects total 
surplus in Australia.
b After the fall in price, Australian consumers buy 1 150 000 sofas, of which 300 000 are 
produced domestically and 850 000 are imported. Calculate the change in consumer 
surplus, producer surplus and total surplus from the price reduction.
c If the government responded by putting a $200 tariff on imported sofas, what would this 
do? Calculate the revenue that would be raised and the deadweight loss. Would it be a 
good policy from the standpoint of Australian welfare? Who might support the policy?
d Suppose that the fall in price is attributable not to technological advance but to a $200 
per sofa subsidy from the Swedish Government to Swedish industry. How would this 
affect your analysis?