5. Refer to the graphs in problem 4. Suppose that instead of a tariff, Home applies an import quota limiting the amount foreign can sell to 2 units. Remember, intercept for Demand curve should be 14, not 18. a. Determine the net effect of import quota on the Home economy if the quota licenses are allocated to local producers. Price Price 18 )7 5030.30 2 4 5 6 8 Quantity 2 6 Import (a) Home market (13) Import market b. Calculate the net effect of the import quota on Home's welfare if the quota rents are earned by foreign exporters. c. How do your answers to parts (a) and (b) compare with part (c) of problem 4? 6. Home's demand curve for wheat is X9 = 100 - 201'. Its supply curve is X5 = 20 + 201'. a. Derive and graph Home's import demand schedule. What would the price of wheat be in the absence of trade? Now add Foreign, which has a demand curve X9 = 80 20F and a supply curve X\" = 40 + 20F. b. Derive and graph F orei gn's export supply curve and nd the price of wheat that would prevail in Foreign in the absence of trade. Now allow Foreign and Home to trade with each other, at zero transportation cost. c. Find and graph the equilibrium under free trade. What is the world price? What is the volume of trade? Now Home imposes a specific tariff of 0.5 on wheat imports. d. Determine and graph the effects of the tariff on the following: (1) the price of wheat in each country; (2) the quantity of wheat supplied and demanded in each country; (3) the volume of trade. e. Determine the effect of the tariff on the welfare of each of the following groups: (1) Home import-competing producers; (2) Home consumers; (3) the Home government. f. Show graphically and calculate the terms of trade gain, the efficiency loss, and the total effect on welfare of the tariff. Suppose that Foreign had been a much larger country, with domestic demand and supply given by X*D = 800 - 200P and X*S = 400 + 200P, respectively. g. Recalculate the free trade equilibrium and the effects of a 0.5 specific tariff by Home. Relate the difference in results to the discussion of the small country case in the text