Due to a mad-cow disease scare, Italy has banned imported beef. An independent scientific panel has now concluded that imported beef is safe. Nonetheless, Italy has resisted allowing imported beef into its domestic market, despite an order by the World Trade Organization that it allow imports or face sanctions.

Italy's domestic demand and supply are given by the following equations, with price in euros/kilogram and quantity in millions of kilograms:

If Italy allows imports, unlimited quantities of beef can be imported at the world price of 10 euros/kilogram. A graph of the domestic demand and supply curves is provided.

1. If imports are not allowed, what will be the price of beef in Italy? How much will be consumed?

2. Suppose Italy now allows imports.

i. What will be the price of beef?

ii. How much will be consumed?

iii. How much will be imported?

iv. What is the gain in consumer surplus? Explain this change, if any.

v. What is the loss to Italy's domestic beef producers? Explain this change, if any.