Let's break down the problem step by step: ## **Step 1: Understand the Graph** - **Y-axis:** Price ($ per solar panel) - **X-axis:** Quantity (thousands) - **Supply (domestic):** Upward slope - **Demand (domestic):** Downward slope - **World price:** Horizontal line at $600 ## **Step 2: Identify Key Points** - **World price:** $600 - **Intersection of World Price with Demand:** About 16,000 units - **Intersection of World Price with Supply:** About 2,000 units With **free trade**, domestic production is 2,000, domestic consumption is 16,000, and imports = 14,000. ## **Step 3: Apply the Tariff** - **Tariff:** 33% of $600 = $198 - **New price:** $600 + $198 = $798 Now, find the new equilibrium: - At **$798**, check the quantities for supply and demand: - **Supply at $798:** About 4,000 units (where supply curve meets $798) - **Demand at $798:** About 12,000 units (where demand curve meets $798) - **New imports:** 12,000 - 4,000 = 8,000 units ## **Step 4: Calculate Deadweight Loss** Deadweight loss consists of two triangles: 1. **Production DWL:** Extra cost of producing domestically rather than importing 2. **Consumption DWL:** Lost gains from trade due to reduced consumption **Width of each triangle:** Change in quantity = 2,000 units (for supply; 4,000-2,000) and 4,000 units (for demand; 16,000-12,000) - But both triangles have a base of 2,000 units (from 2,000 to 4,000 for supply; from 12,000 to 16,000 for demand). - **Height of each triangle:** Size of tariff = $198 ### **Deadweight Loss Calculation** Formula for area of each triangle: \[ \text{Area} = \frac{1}{2} \times \text{base} \times \text{height} \] - **Production DWL:** \(\frac{1}{2} \times 2,000 \times 198 = 198,000\) - **Consumption DWL:** \(\frac{1}{2} \times 4,000 \times 198 = 396,000\) - Correction: Actually, the base for each triangle is **2,000**, since the reduction in imports is from 14,000 to 8,000, a change of 6,000, split between increased domestic production (2,000 to 4,000 = 2,000 units) and reduced consumption (16,000 to 12,000 = 4,000 units). - But deadweight loss is **not** the rectangle; it's the two small triangles: - **Production side:** 2,000 units - **Consumption side:** 4,000 units But the height is the **tariff** ($198), and the width is the reduction in imports (6,000 units). Since the triangles are adjacent, let’s calculate each: - **Production DWL:** \(\frac{1}{2} \times (4,000 - 2,000) \times 198 = \frac{1}{2} \times 2,000 \times 198 = 198,000\) - **Consumption DWL:** \(\frac{1}{2} \times (16,000 - 12,000) \times 198 = \frac{1}{2} \times 4,000 \times 198 = 396,000\) ### **Total Deadweight Loss** \[ 198,000 + 396,000 = 594,000 \] --- ## **Final Answer:** ### **Deadweight Loss = $594,000** --- ### **Summary Table:** | Situation | Quantity Supplied | Quantity Demanded | Imports | |---------------------------|------------------|-------------------|---------| | Free Trade (no tariff) | 2,000 | 16,000 | 14,000 | | With Tariff ($798) | 4,000 | 12,000 | 8,000 | **Deadweight Loss = $594,000**