Suppose the world price of butter is $0.50 per pound and the domestic price in autarky is $1.00 per pound. Use a diagram similar to Figure 5-10 to show the following.

a. If there is free trade, domestic butter producers want the government to impose a tariff of no less than $0.50 per pound. Compare the outcome with a tariff of $0.25 per pound. 

b. What happens if a tariff greater than $0.50 per pound is imposed?

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Total nonfarm employment (index 2000 = 100) 105 100 95 90 85 United States Hickory, NC Krugman/Wells, Economics, 6e, 2021 Worth Publishers 2000 2001 2002 2003 2004 2005 2006 2007 Year