6. Effects of a tariff Suppose the following graph shows the domestic demand (D) and domestic supply (S) for cheese in Algeria, which is a producer as well as an importer of cheese. The free trade world price of cheese (P.) is $2,500 per tonne. 7000 Price with Tariff Tariff Revenue PRICE COST (Dollars per tonne) Change in PS DWL 1500+ 1000
QUANTITY (Milions of tonnes) per tonne. Algeria would produce million tonnes of cheese and import With free trade, the price of cheese in Nigeria would be s million tonnes. Suppose Algeria’s government imposes a 60% tariff on cheese imports. Assume the tariff does not influence the world price of cheese. On the preceding graph, use the black line (plus symbol) to show the world supply of cheese with the tariff its domestic consumption by The tariff million tonnes, and Algeria’s production of cheese by million tonnes, its imports by million tonnes. On the preceding graph, use the green quadrilateral triangle symbols) to shade the area that represents tariff revenue. Then use the purple point (diamond symbol) to shade the area that represents the change in the producer surplus resulting from the tariff. Finally, use the black points to shade the area, or areas if there are more than one on the graph, that together represent the deadweight loss resulting from the tariff Note: Select and drag a fill area point from the palette to the graph. To fill in regions on the graph, merely drop the fill area point on the desired region.
On the preceding graph, use the green quadrilateral (triangle symbols) to shade the area that represents tariff revenue. Then use the purple point (diamond symbol) to shade the area that represents the change in the producer surplus resulting from the tariff. Finally, use the black points to shade the area, or areas if there are more than one on the graph, that tooether represent the deadweight loss resulting from the tariff Note: Select and drag a fill area point from the palette to the graph. To fill in regions on the graph, merely drop the fill area point on the desired region FH in the blank calls in the following table to summarize the effects of the tariff on Algeria’s welfare. (Hint: The area of each shaded region on the graph can be found by clicking on the polygon.) Amount of Change (Millions of dollars) Change In… Gain or Loss Tariff revenue Producer surplus Consumer surplus Change in total welfare