b. Describe and estimate the welfare loss associated with the tariff

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2. Assume that in autarky the price of each car is $8000 in the domestic market. With free trade,
this price decreases to $5000, but if a $2000 tariff is imposed on car imports, the price of cars
rises to $7000. This situation is depicted in figure below.
P
8000
7000
5000
•Sw+t
-Sw
Cars
20 35 40 45 60
a. Show and calculate the revenue, redistribution, protective, and consumption effects of
the tariff.
b. Describe and estimate the welfare loss associated with the tariff
Transcribed Image Text:2. Assume that in autarky the price of each car is $8000 in the domestic market. With free trade, this price decreases to $5000, but if a $2000 tariff is imposed on car imports, the price of cars rises to $7000. This situation is depicted in figure below. P 8000 7000 5000 •Sw+t -Sw Cars 20 35 40 45 60 a. Show and calculate the revenue, redistribution, protective, and consumption effects of the tariff. b. Describe and estimate the welfare loss associated with the tariff
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