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Suppose Home is a large country whose supply and demand curves arc given by the left of the following figure. a. Assume the world price is P^W = pound 5. Determine the consumer and producer surplus under free trade. b. Suppose the government at Home imposes a tariff in the amount of pound 4 (i. e., t = 4). What is the new Home price? What is the price received by the foreign exporters? c. Determine the terms of trade gain for Home with the tariff. d. Does Home welfare increase or decrease due to the tariff? Explain. e. At what amount would the tariff be considered prohibitive? Explain.

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