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1. The world price of wine is below the price that would prevail in the United States in the absence of trade.
1) Assuming that American imports of wine are a small part of total world wine production, draw a graph for the U.S. market for wine under free trade.
2) Now suppose that a tariff is place on the importation of wine into the United States to protect domestic wine producers. What does this do to the price?
3) Draw a new diagram illustrating the price change as well as the changes to the quantity of imports.
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What price does it pay for the factor?
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