A small, open economy is a price-taker in the world market for electricity. It produces domestically 4 billion units of electricity from renewables and it imports another 3 billion units annually. The world price of electricity is $70per unit. Analysts assume linear demand and supply curves and estimate the price elasticity of domestic supply to be 0.3 and the price elasticity of domestic demand to be -0.2 at the current 'free trade' equilibrium.

a) Suppose the following policy is implemented: a $20 per unit import tariff is imposed on renewable electricity, that would involve annual administrative costs of $200 million. Assume a horizontal world supply curve: i.e. the world price will not change as a result of this price-talking economy imposing the import fee, but the domestic price will increase by $20 per barrel. Represent the problem graphically and clearly label all elements. Determine the quantity consumed, the quantity produced domestically, and the quantity imported after the imposition of the import tariff. Estimate the annual social benefits of the import tariff.