Effects of Free Trade and Restrictions

Macroeconomics – Week #8 Assignment

Effects of Free Trade and Restrictions Use the graph below to answer the following questions:

The graph above shows the demand and supply of wrenches for the country of Spain.

1. If trade is avoided, Spain consumes _____ wrenches at a price of _____ per wrench.

2. With free trade, for a world price of $4 per wrench, Spain is producing _____wrenches.

3. With free trade, for a world price of $4 per wrench, Spain is consuming _______ wrenches.

4. With free trade, for a world price of $4 per wrench, Spain is importing _________wrenches.

5. If the world price is $4 per wrench, and the government of Spain imposes a tariff of $2, Spain produces ____________ and imports __________wrenches.

6. If the world price is $4 per wrench, and the government of Spain imposes a tariff of $2, how much tariff revenue will the Spain’s government collect? _____