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Consider a hypothetical example of trade in aluminum between the United States and China. For simplicity, assume that China is the only source of U.S. aluminum imports. The following graph shows the U.S. market for aluminum. Note that in the absence of any trade, the market price for aluminum in the United States is $500 per tonne, and the equilibrium quantity is 150 million tonnes per month. Use the green area (triangle symbol) to show U.S. consumer surplus under free trade with China, and use the purple area (diamond symbol) to show U.S. producer surplus under free trade with China. Domestic Demand Domestic Supply ? Consumer Surplus Producer Surplus PRICE (Dollars per tonne) Free Trade Price 0 30 60 90 120 150 180 210 240 270 300 QUANTITY OF ALUMINUM (Millions of tonnes per month) Use the previous graph to complete the first row of the following table by indicating the quantity of aluminum supplied by U.S. producers, demanded by U.S. consumers, and imported from China under free trade. Quantity Supplied by U.S. Producers (Millions of tonnes of aluminum per month) Quantity Demanded by U.S. Consumers (Millions of tonnes of aluminum per month) Quantity Imported from China (Millions of tonnes of aluminum per month) Free Trade Trade with Tariff Suppose American aluminum manufacturers convince the U.S. government that Chinese firms are selling aluminum in the U.S. market at well below the cost of producing the aluminum, a practice known as dumping. In response to the accusations, the U.S. government puts a tariff of $100 per tonne on aluminum from China. The tariff increases the price of aluminum from $200 to per tonne. Complete the second row of the previous table by indicating the quantity of aluminum supplied by U.S. producers, demanded by U.S. consumers, and imported from China in the presence of a $100-per-tonne tariff. On the following graph, use the black line (cross symbol) to indicate the domestic price of aluminum in the presence of a $100-per-tonne tariff. Then use the green area (triangle symbol) to shade the area that represents consumer surplus under the tariff, and use the purple area (diamond symbol) to shade the area that represents producer surplus under the tariff. Finally, use the grey rectangle (star symbols) to show the revenue that the U.S. government collects as a result of the tariff, and use the tan triangles (dash symbols) to show the deadweight loss (DWL) from the imposition of the tariff. Domestic Demand Domestic Supply + + Price with Tariff Consumer Surplus PRICE (Dollars per tonne) Producer Surplus Free Trade Price 200 Tariff Revenue 0 A + 0 30 60 90 120 150 180 210 240 270 300 QUANTITY OF ALUMINUM (Millions of tonnes per month) DWL True or False: According to this model, restricting trade using tariffs helps both consumers and domestic producers. O True O False

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