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Specification:
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Demand and supply, efficiency, inflation, aggregate demand and aggregate Supply (AD-AS), trade and tariffs
Click to read the article and then answer the questions:
China hits US farm goods with tariffs as trade war escalates
Questions (Paper 2 style)
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Define the term “tariff” as used in the article (2 marks)
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Define the term “inflation” as used in the article (2 marks)
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Calculate the new price of a US agricultural product exported to China, originally priced at $100 per unit, after a 10 per cent tariff is imposed by China (3 marks)
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Using a demand and supply diagram, illustrate the impact of China’s 10 per cent tariff on US soyabeans on the equilibrium price and quantity in the Chinese market (4 marks)
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Using an Aggregate Demand and Aggregate Supply (AD-AS) diagram, explain the potential impact of increased tariffs on the US economy’s output and price level (4 marks)
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Using an international trade diagram for China, explain how the retaliatory tariff of 10 per cent will affect the market for soyabeans (4 marks)
Higher order thinking
To what extent do tariffs contribute to economic efficiency? Discuss using concepts of allocative efficiency, producer and consumer surplus, and deadweight loss. Evaluate whether tariffs and retaliatory tariffs align with the broader goal of maximising societal welfare.
TOK connect
Economic models such as comparative advantage, market forces, WTO and trade agreements suggest free trade achieves optimal outcomes. However, in practice trade policies often involve political and strategic considerations. To what extent can economic models accurately predict and guide trade policy decisions, given the complexity of human behaviour?
Sandeepa Madan, Shiv Nadar School
