Question

b. next, using the shapes in the graph, shade the areas that represent consumer surplus (cs), producer surplus (ps), and government revenue (gr) after the tariff is enacted.

c. if the u.s. were completely open to international trade, it would import 36 billion pounds of sugar per year.

d. given the tariff, quantity demanded will be 30 billion pounds, and quantity supplied will be 18 billion pounds. u.s. imports will therefore be 12 billion pounds.

Explanation:

Part b (Shading Areas Explanation)

• Consumer Surplus (CS): After a tariff, the demand curve is still the same, but the effective price consumers pay is the world price plus the tariff. CS is the area above the new price (world price + tariff) and below the demand curve, up to the quantity demanded with the tariff.
• Producer Surplus (PS): The supply curve is unchanged. PS is the area below the new price (world price + tariff) and above the supply curve, up to the quantity supplied with the tariff.
• Government Revenue (GR): The tariff per unit is (new price - world price). GR is the area of a rectangle with height equal to the tariff per unit and width equal to the quantity of imports (quantity demanded - quantity supplied with tariff), so it's the area between the two prices (tariff amount) and the imported quantity.
• To shade:
• For CS: Identify the demand curve, the price after tariff (let's say \( P_t \)), and the quantity demanded with tariff (\( Q_d^t \)). Shade the triangle (or area) above \( P_t \), below demand, from 0 to \( Q_d^t \).
• For PS: Identify the supply curve, \( P_t \), and quantity supplied with tariff (\( Q_s^t \)). Shade the area below \( P_t \), above supply, from 0 to \( Q_s^t \).
• For GR: The width is \( Q_d^t - Q_s^t \) (imports with tariff), and height is \( P_t - P_w \) (tariff per unit, where \( P_w \) is world price). Shade the rectangle with these dimensions.

Part c

When completely open to trade, imports are calculated as quantity demanded at world price minus quantity supplied at world price. From typical supply - demand for sugar (assuming standard curves), if we assume that at world price \( P_w \), quantity demanded is, say, \( Q_d^w \) and quantity supplied is \( Q_s^w \), and \( Q_d^w - Q_s^w=36 \) billion pounds (as given in the problem), so the import quantity is 36 billion pounds.

• Quantity Demanded with Tariff: The tariff increases the price consumers pay, so they demand less than at world price. The problem states it's 30 billion pounds.
• Quantity Supplied with Tariff: The higher price (world price + tariff) encourages domestic producers to supply more, so quantity supplied is 18 billion pounds (given).
• Imports with Tariff: Imports = Quantity Demanded - Quantity Supplied = \( 30 - 18=12 \) billion pounds.

Answer:

36 billion pounds

Part d