The figure below represents the U.S. market for textiles, assuming that U.S. supply and demand has no impact on
world prices. Assume further that S1 represents the U.S. domestic supply of textiles, S2 represents the supply in the U.S. under conditions of free trade, and S3 represents supply with a tariff on imports.
a. If U.S. allows imports but imposes a tariff, what will the price be for textiles charged by domestic producers? Explain.
b. If U.S. textile imports are not restricted in any way, what will the price be for textiles charged by domestic producers? Explain.
c. If the U.S. bans all imports of textiles, what will the price be for textiles charged by domestic producers? Explain.
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