4. Table 1 gives the effect of a tariff on cotton sweaters. (Assume there is no difference between domestically produced…

4. Table 1 gives the effect of a tariff on cotton sweaters. (Assume there is no difference between domestically produced sweaters and foreign produced sweaters.)
Table 1
Free Trade With a $4.00 Tariff
World Price of sweaters
Tariff per sweater
Domestic Price of sweaters
Sweaters consumed domestically (million sweaters/year)
Sweaters produced domestically (million sweaters/year)
Sweaters imported (million packs/year $42.00
0
$42.00
60
12
48 $42.00
$4.00
$46.00
52
18
34

a) Using an upward sloping domestic supply curve and a downward sloping demand curve, calculate the losses to domestic consumers from the tariff.

b) Calculate the net effect on the country’s welfare as a result of the tariff.

c) Based on the information given in Table 1, would the optimum import tariff on sweaters be negative, zero, or positive? Why?