A small country imports sugar. With free trade at the world price of $0.10 per pound, the
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A small country imports sugar. With free trade at the world price of $0.10 per pound, the country’s national market is:
The country’s government now decides to impose a quota that limits sugar imports to 240 million pounds per year. With the import quota in effect, the domestic price rises to $0.12 per pound, and domestic production increases to 160 million pounds per year.
The government auctions the rights to import the 240 million pounds.
a. Calculate how much domestic producers gain or lose from the quota.
b. Calculate how much domestic consumers gain or lose from the quota.
c. Calculate how much the government receives in payment when it auctions the quota rights to import.
d. Calculate the net national gain or loss from the quota. Explain the economic reason(s) for this net gain or loss.
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a The change in producer surplus is a gain of 002 per pound for the 120 million pounds that are prod...View the full answer
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