a Th ' guss;:e:mu:::;i Canada: recently Signed new preferential trade agreement, and has agreed to pay armers o compensate for increased competition the ' y may face from un orts. You are employed as an analyst by AAFC. In order to determine the dollar value of compensatildn AAFC requires an estimate of how the Canadian price of turkeys and the quantity of imported turkeys will change as a result of the new trade agreement. 1 I You are provided with the following information about the Canadian turkey market: 1. The world price of turkey is $5. 2. The Canadian turkey market is currently (before the new trade agreement) protected by a tariff rate quota (TRQ) of the following format: a) the in-quota tariff is $1 per unit b) the import quota volume is 100 units C) the over-quota tariff is $10 per unit. 3 3. An excess demand (ED) (for imports) function for turkey has been estimated as P = 28 0.14Q. , a) Draw the diagram for imports in this market, and solve for the Canadian turkey price and the volume of imports under the existing TRQ. Label all relevant functions, axes, etc. (6 marks) Hint: rst, determine if the quota portion of the TRQ is binding. Do this by solving for Q (using + t) and at the over-quota price (PW + T). Can ED the ED function) at the in-quota price (PW . . . _ intersect the effective supply function at those quantities? If not, then determine Canadian P by plugging import quota volume into the ED function. the overquota tariff to $6. Modify the diagram b) The Canadian government is considering reducing Price (Pw + t) and at the over-quota price (Pw + T). Can ED intersect the effective supply function at those quantities? If not, then determine Canadian P by plugging import quota volume into the ED function. b) The Canadian government is considering reducing the over-quota tariff to $6. Modify the diagram for this market, and solve for the Canadian turkey price and the volume of imports. Label all relevant functions, axes, etc. (4 marks) c) The government is considering increasing the import quota volume from 100 units to 130 units (note this would be instead of reducing the over-quota tariff rate). Modify the diagram for this market, and solve for the Canadian turkey price and the volume of imports. Label all relevant functions, axes, etc. (4 marks) d) The Canadian government is considering reducing the in-quota tariff to $0.50 (note this would be instead of the options in parts b and c). Modify the diagram for this market, and solve for the Canadian turkey price and the volume of imports. Label all relevant functions, axes, etc. (4 marks) Notes: 1. Canada is a small importing country in the world market for turkeys. 2. You can use more than one diagram if your diagram becomes too cluttered to accommodate all the proposed policy alternatives. If you do this, then include the baseline (current, un-liberalised market) scenario in each diagram, against which you compare your counterfactual policy option. 3. Show your work and conduct calculations to two decimal points. 4. Axes on your diagram(s) need not be to scale, as long as prices and quantities are ordinally correct