Question

refer to figure 34-6. a tariff raises the price in the market from \\(p_w\\) to \\(p_{w+t}\\). as a result, u.s. domestic sales rise from _______

\\(q_1\\) to \\(q_3\\)
\\(q_3\\) to \\(q_2\\)
\\(q_1\\) to \\(q_4\\)
\\(q_4\\) to \\(q_2\\)

Explanation:

Analyze the domestic supply curve

Using the Tariff Welfare Analysis knowledge point
The domestic supply curve is represented by \(S_{US}\). At any given price, the quantity supplied by domestic producers is found along this curve.

Determine domestic sales at the world price

Using the Tariff Welfare Analysis knowledge point
At the initial world price \(P_W\), the domestic quantity supplied is determined by the intersection of the price line \(P_W\) and the domestic supply curve \(S_{US}\) at point \(D\). Projecting this point down to the horizontal axis gives the initial domestic sales quantity as \(Q_1\).

Determine domestic sales after the tariff

Using the Tariff Welfare Analysis knowledge point
When a tariff is imposed, the price in the domestic market rises to \(P_W + t\). At this higher price, the domestic quantity supplied is determined by the intersection of the price line \(P_W + t\) and the domestic supply curve \(S_{US}\) at point \(B\). Projecting this point down to the horizontal axis gives the new domestic sales quantity as \(Q_2\).

Conclude the change in domestic sales

Using the Tariff Welfare Analysis knowledge point
As a result of the tariff raising the price from \(P_W\) to \(P_W + t\), U.S. domestic sales rise from \(Q_1\) to \(Q_2\).

Answer:

• (A) \(Q_1\) to \(Q_3\)
• (B) \(Q_1\) to \(Q_2\) (Correct answer)
• (C) \(Q_1\) to \(Q_4\)
• (D) \(Q_4\) to \(Q_2\)