Consider the market for vegetable fiber. Vegetable fiber is traded in a highly competitive world market, and the world price is $9.00 per pound. Unlimited quantities are available for import in the United States at this price.

The U.S. domestic supply is: Q_s = 2/3 p and U.S. demand is: Q_d = 40 2p

(a) Graph the above market. If there are no tariffs, quotas or other trade restrictions in the United States, what will be the U.S. price, production level, and amount of imports?

(b) If the U.S. imposes a tariff of $9 per pound, what will be the U.S. price and level of imports? How much revenue will the government earn from the tariff? How large is the deadweight loss?

(c) If the U.S. has no tariff but imposes an import quota of 8 million pounds, what will be the U.S. domestic price? What is the cost of this quota for U.S. consumers of the fiber (i.e. the loss of consumer surplus)? What is the gain for U.S. producers?