Among the given statements pick one that best describes the country’s import at the PA price level on the diagram below (tariff model). Assume this is a graphic model of the home economy that is regarded as a potential importer. Select one – the most appropriate answer.

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To analyze the import at the price level PA in a tariff model graph, we must compare the quantity demanded by the domestic economy with the quantity supplied domestically at that price.

Option 1: No correct answer. This would be chosen only if none of the quantity gaps matched the import notion. However, in the standard tariff-import diagram, imports equal the excess of domestic demand over domestic supply at the given price, so there is a specific D–S gap that represents imports. Therefore this option is not appropriate.

Option 2: Import should be (D1 – S2). This choice asserts that imports equal the difference between the domestic quantity demanded at PA (D1) and the domestic quantity supplied at PA (S2). On the diagram, D1 is the quantity demanded corresponding to the point where the price PA intersects the demand curve, and S2 is the quantity supplied corresponding to the point where PA intersects the supply curve on the domestic side. If PA is above the world price due to a tariff, the domestic demand typically exceeds domestic supply by the D1 − S2 gap, which is the import quantity. This matches the standard import calculation: imports = quantity demanded − quantity supplied at the price PA.

Option 3: Import should be (D1 – S1). Here the subtraction uses S1, the lower domestic supply level at PA, which would overstate the gap if S1 is not the actual domestic supply level corresponding to price PA on the graph. This conflicts with the actual intersection points shown for PA, so it misrepresents the import magnitude.

Option 4: Import should be (D2 – S2). If D2 is the quantity demanded at a higher price level than PA or represents another point not corresponding to PA, using D2 would misalign with the PA-specific demand. Since imports are determined by the PA intersection with the demand curve, D2 − S2 does not reflect the PA-born import gap.

Option 5: We cannot identify the expected import volume since it will depend on exporting economy readiness to supply a good overseas. In this static tariff diagram, the import quantity is read directly from the PA price level as the difference between domestic demand and domestic supply at that price. While dynamic export readiness can affect real outcomes over time, the graph provides a definite import gap at PA, so this statement is not aligned with the diagram’s instantaneous interpretation.

Option 6: Import should be (D2 – S2). This is essentially the same misalignment as Option 4 if D2 is not the PA-demand point; it ignores that PA fixes the demand at D1 level, not D2, and thus does not capture the PA-specific import gap.

In summary, the import at the PA price level is the domestic demand at PA (D1) minus domestic supply at PA (S2), which corresponds to the choice Import should be (D1 – S2).

econ_420_120255_249094 Lesson 6 Quiz

Among the given statements pick one that best describes the country’s import at the PA price level on the diagram below (tariff model). Assume this is a graphic model of the home economy that is regarded as a potential importer. Select one – the most appropriate answer.

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