The United States has a comparative disadvantage in furniture production, and much of the furniture sold in the United States comes from abroad, especially from China. A multiyear housing boom increased the demand for furniture as families moved into new and bigger houses. Assuming that the United States is a small country in the world furniture market, answer the following
If there are no barriers to trade, what would you expect to be the effect of the housing boom on the U.S. price of furniture, the quantity produced and consumed, and the quantity imported? Explain and illustrate.
Suppose now that, before the housing boom, the U.S. had a specific tariff on imported furniture. What is the effect of the housing boom in this case? Explain and illustrate.