Exercise in context with tariff and non tariff measures:

Country A imports 4 million tons of wheat from country B. Country A is considered a small country. The price in country A is 120 /ton. This import quantity covers 10% of domestic demand in country A. Country B exports 20% ofits domestic supply of wheat. The price elasticities of demand are -0.5 and -0.8 in country A and country B, respectively. The supply elasticities are equal to 1.2 and 0.8 in country A and B, respectively. Country A applies a bilateral import quota of 5 million tons of wheat from country B.

a)What is the price of wheat in country B?

b)Calculate the import demand elasticity for country A and the export supplyelasticity for country B.

c)Income in country A rises. What is the effect on trade prices and quantities underthe quota? State the effects in qualitative terms.

d)Assume now that the import quota in country A is binding, i.e. imports are exactly equal to the quota. Income in country A rises again. Country A considers replacing the import quota with an import tariff. Compare how trade prices and quantities would change in the tariff regime instead of the quota regime under rising income. State the effects in qualitative terms OR use a small graph (labels!).