GRAPHICAL COMPARISON OF TARIFFS AND QUOTAS

7. A graphical comparison of tarifts and quotas Borzia and Ardon are small countries that protect their economic growth from rapidly advancing globalization by limiting the import of rugs to 20 million. To this end, each country imposes a different type of trade barrier when the world price (PW) is $2,000. In Borzia, the government decides to impose a tariff of $3,000 per rug; in Ardon, the government implements a quota of 20 million rugs. Assume that Borzia and Ardon have identical domestic demand (D0) and supply (S) curves for rugs as shown on the following graph. Under these conditions, the price of rugs is $5,000 per rug in each country. Suppose that in both countries, demand for rugs rises from D0 to D1. Assuming Borzia keeps the tariff at $3,000 per rug, complete the first row of the following table by calculating each of the values given this increase in demand. Assuming Ardon maintains a quota of 20 million rugs, complete the second row of the table by calculating each of the values given this increase in demand. True or False: The increase in demand helps domestic producers but hurts domestic consumers in Ardon. True False Which of the following explain why a tariff is a restrictive trade barrier than an equivalent quota. Check all that apply. A tariff prevents domestic consumers from buying imports even if they are willing to pay a higher price. Importers who are able to pay the tariff duty will get the product. An exporter can try to cut costs or slash profit margins