QUESTION 6 In this figure, the country is importing a product at the world price

Question

QUESTION 6 In this figure, the country is importing a product at the world price of $3 per unit. In order to protect its infant industry, this country imposes a tariff of $2 per unit bringing the domestic price of the product to $5 per unit. In retaliation, the exporting countries lower the price of the product imported into this country, which results in a lower world price at $2 per unit. Meanwhile, the importing country keeps the domestic price at $5 in order to continue to protect the domestic industry. Please answer the following questions based on this information. Price 13 12 Demand 10 upply 4 R V Quant Refer to the above figure. When the world price falls to $2 the net welfare change to the country, relative to the domestic price of $5, is represented by the area

Explanation / Answer

The country would gain the deadweight loss when the world price falls to $2 relative to the domestic price of $5:

DWL = Area ISV + HUT

Option d is correct.

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