For the statement of Problem 1:
Statement of Problem 1
Draw a figure similar to Figure 8.1 for Nation 1 but with the quantity of commodity Y on the horizontal axis and the dollar price of Y on the vertical axis. Draw SY for Nation 1, identical to SX for Nation 2 in Figure 8.1, but draw DY for Nation 1 crossing the vertical axis at PY = $8 and the horizontal axis at 80Y. Finally, assume that PY = $1 under free trade and that Nation 1 then imposes a 100 percent ad valorem import tariff on commodity Y. With regard to your figure, indicate the following for Nation 1:
(a) Determine the dollar value of the consumer surplus before and after the imposition of the tariff.
(b) Of the increase in the revenue of producers with the tariff (as compared with their revenues under free trade), how much represents increased production costs? Increased rent, or producer surplus?
(c) What is the dollar value of the protection cost, or deadweight loss, of the tariff?