Suppose That the Following Graph Gives the U

question 112

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Suppose that the following graph gives the U.S. supply (S) of and demand (D) for auto parts (say steering wheels). U.S. automakers can also import steering wheels from Mexico at $50 each and from Japan at $40 each. Currently, there is a 60% tariff on imported steering wheels. I. How many steering wheels will the United States import?
II. How much tariff revenue will the U.S. government collect?
III. Suppose that the United States and Mexico become part of NAFTA and there is free trade between the two countries. Now how many steering wheels will the United States import?
IV. Calculate the trade creation gains from free trade in steering wheels with Mexico.
V. Calculate the trade diversion losses from free trade in steering wheels with Mexico.
VI. Does the United States gain or lose as a result of free trade in steering wheels with Mexico?

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Definitions:

American Bank

A financial institution in the United States that offers various banking services such as deposits, loans, and other financial services.

Loan Repaid

The process of paying back borrowed money to the lender, typically including both the principal amount and interest.

Canadian Dollars

The currency of Canada, used as a medium of exchange within the country.

Settlement Date

The specific date on which a financial transaction is completed and contractual obligations must be fulfilled.