ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Chapter 19, Problem 2.5P
To determine
The minimum level of quota to have an impact on the trade and the conditions when the net welfare loss from an import quota exceeds the net welfare loss from equivalent tariff.
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Figure 7-2
Price
(dollars
per pound)
$3.00
2.50
1.75
0.50
12 18 26 38 45
U.S. Supply
U.S. Demand
Quantity of coffee
(millions of pounds)
Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 7-2 shows the impact of this tariff.
Refer to Figure 7-2. Without the tariff in place, the United States consumes
12 million pounds of coffee.
Pw+tariff
World price (P
26 million pounds of coffee.
33 million pounds of coffee.
45 million pounds of coffee.
Namibia is contemplating on imposing an export subsidy to encourage its businesses to export more. with the use of the diagram, discuss the effect of such an export sudsidy
H3.
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- Explain how a subsidy on agricultural goods like sugar adversely affects the income of foreign producers of imported sugar.arrow_forwardShow graphically that for any tariff, there is an equivalent quota that would give the same result. What would be the difference, then, between the two types of trade barriers? Hint: It is not something you can see from the graph.arrow_forward3. Import quotas Kazakhstan is a grape producer, as well as an importer of grapes. Suppose the following graph shows Kazakhstan's domestic market for grapes, where SK is the supply curve and DK is the demand curve. The free trade world price of grapes (Pw) is $800 per ton. Suppose Kazakhstan's government restricts imports of grapes to 120,000 tons. The world price of grapes is not affected by the quota. Analyze the effects of the quota on Kazakhstan's welfare. On the following graph, use the purple line (diamond symbol) to draw the Kazakhstan's supply curve including the quota SK+Q. (Hint: Draw this as a straight line even though this curve should be equivalent to the domestic supply curve below the world price.) Then use the grey line (star symbol) to indicate the new price of grapes with a quota of 120,000 grapes. 4000 PRICE (Dollars perton) 3800 3200 2800 2400 2000 1000 1200 800 0 0 St 80 120 160 200 240 200 320 360 QUANTITY (Thousands of tons) Pw SK+Q Price with Quota A Change in…arrow_forward
- Which of the choices describes how the effects of import tariffs and import quotas are different? The domestic cost of an import tariff is larger than the domestic cost of a comparable import quota. Import tariffs create deadweight loss, whereas import quotas do not create deadweight loss. Quotas do not affect the equilibrium price, whereas tariffs do not affect the equilibrium quantity. Some foreign producers receive some of the benefits generated by an import quota.arrow_forward3. Import quotas Kazakhstan is an apple producer, as well as an importer of apples. Suppose the following graph shows Kazakhstan's domestic market for apples, where SK is the supply curve and DK is the demand curve. The free trade world price of apples (Pw) is $200 per ton. Suppose Kazakhstan's government restricts imports of apples to 160,000 tons. The world price of apples is not affected by the quota. Analyze the effects of the quota on Kazakhstan's welfare. On the following graph, use the purple line (diamond symbol) to draw the Kazakhstan's supply curve including the quota SK+Q. (Hint: Draw this as a straight line even though this curve should be equivalent to the domestic supply curve below the world price.) Then use the grey line (star symbol) to indicate the new price of apples with a quota of 160,000 apples. PRICE (Dollars per ton) 1000 900 800 700 600 500 400 300 200 100 0 0 40 SK + D K P W 80 120 160 200 240 280 320 380 400 QUANTITY (Thousands of tons) SK+Q The equivalent…arrow_forwardSuppose there are 2 countries that have the following supply and demand equations in autarky Country A Demand: Q = 80 - 4P Supply: Q = 2P - 4 Country B Demand: Q = 32 - 2P Supply: Q = 8P - 8 a) Given the information above which country would be the importer? (Enter A, B) b)What would be the Free Trade Price? c)What would be the Free Trade quantity traded? d) If the importing country imposes a tariff equal to $2 per unit, what would be the new price in the importing country?arrow_forward
- 3. Import quotas Kazakhstan is an apple producer, as well as an importer of apples. Suppose the following graph shows Kazakhstan's domestic market for apples, where SK is the supply curve and D is the demand curve. The free trade world price of apples (Pw) is $200 per ton. Suppose Kazakhstan's government restricts imports of apples to 160,000 tons. The world price of apples is not affected by the quota. Analyze the effects of the quota on Kazakhstan's welfare. On the following graph, use the purple line (diamond symbol) to draw the Kazakhstan's supply curve including the quota SK+Q. (Hint: Draw this as a straight line even though this curve should be equivalent to the domestic supply curve below the world price.) Then use the grey line (star symbol) to indicate the new price of apples with a quota of 160,000 apples. PRICE (Dollars per ton) 1000 900 800 700 600 500 400 300 200 100 0 0 40 SK K Pv W 80 120 160 200 240 280 320 360 400 QUANTITY (Thousands of tons) SK+Q The equivalent import…arrow_forward3. Import quotas Kazakhstan is an apple producer, as well as an importer of apples. Suppose the following graph shows Kazakhstan's domestic market for apples, where Sk is the supply curve and Dk is the demand curve. The free trade world price of apples (Pw) is $200 per ton. Suppose Kazakhstan's government restricts imports of apples to 200,000 tons. The world price of apples is not affected by the quota. Analyze the effects of the quota on Kazakhstan's welfare. On the following graph, use the purple line (diamond symbol) to draw the Kazakhstan's supply curve including the quota Sk+Q. (Hint: Draw this as a straight line even though this curve should be equivalent to the domestic supply curve below the world price.) Then use the grey line (star symbol) to indicate the new price of apples with a quota of 200,000 apples. PRICE (Dollars per ton) 1000 900 800 700 600 500 400 300 200 100 0 0 50 SK D K P₁ W 100 150 200 250 300 350 400 450 500 QUANTITY (Thousands of tons) SK+Q The equivalent…arrow_forward11arrow_forward
- Recently, US imposed new tariffs on Canadian softwood lumber. Lumber is intensively used in the construction and renovation projects for single-family homes. US Mkt. for lumber. Pw is the price of lumber available to domestic construction firms before the imposition of tariffs. On the graph, show (1) the price of lumber with tariff (PT); (2) quantity of lumber produced by domestic producers (Qsd); (3) quantity of lumber bought by domestic construction firms (Qdd); (4) quantity of lumber imported (IM); (5) revenue from tariff (TR); (6) Tariff deadweight loss (DWL). (5) With up/down arrows, indicate the change in the price of lumber available to domestic construction firms___, quantity of lumber available to domestic construction firms__ , quantity of lumber produced in the US__. In the market for lumber: 1. (10%) Label clearly the supply and demand curves, S and D, and . 2. (60%) On the graph, construct and label clearly (1) the price after the introduction of the tariff (PT) (2)…arrow_forward27. The statement that "if an import tariff raises the relative price of the imported good, the price of the factor used intensively in its production will rise relative to both commodity prices, while the price of the other factor will fall relative to both commodity prices" is called (a) the cancellation axiom (b) the Stolper-Samuelson theorem (c) the law of demand and supply (d) the law of alternatives (e) the principle of comparative advantage oun until on ogui.arrow_forward3. Import quotas Kazakhstan is a grape producer, as well as an importer of grapes. Suppose the following graph shows Kazakhstan's domestic market for grapes, where Sx is the supply curve and Dx is the demand curve. The free trade world price of grapes (Pw) is $800 per ton. Suppose Kazakhstan's government restricts imports of grapes to 120,000 tons. The world price of grapes is not affected by the quota. Analyze the effects of the quota on Kazakhstan's welfare. On the following graph, use the purple line (diamond symbol) to draw the Kazakhstan's supply curve including the quota SK+Q. (Hint: Draw this as a straight line even though this curve should be equivalent to the domestic supply curve below the world price.) Then use the grey line (star symbol) to indicate the new price of grapes with a quota of 120,000 grapes. PRICE (Dollars per ton) 4000 3600 3200 2800 2400 2000 1600 1200 800 400 0 --‒‒‒‒‒‒ 0 40 SK DK Pw 80 120 160 200 240 280 320 360 400 QUANTITY (Thousands of tons) SK+Q Price…arrow_forward
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