Trade policy analysis 1: tariffs
Example: The U.S. market for baby blouses (Q=millions)
 

A. Free trade: The diagram above illustrates the situation faced by the U.S. before it trades.
        Step 1: Suppose Pf = $10. In the diagram, plot Pf and label the free-trade equilibrium quantities.
        Step 2: Fill in the free-trade values in Table 1.
B. Tariff: the U.S. imposes a $3 tariff on imported blouses.
B1. Price and quantity effects
        Step 1: In the diagram, shift Pf up by the amount of the tariff (label your new curve Pf+tar);
        Step 2: Label the new domestic price and equilibrium with the tariff.
        Step 3: Fill in the tariff values in Table 1.

B2. National welfare effects: Comparing the tariff to free trade:
        Step 1: In the diagram, indicate the change in consumer surplus (\\\), producer surplus (///), and government revenue (|||), and indicate the net change in U.S. welfare.
        Step 2: Complete Table 2.