Import Tariffs and Quotas Under Perfect Competition End of Chapter Question

Suppose Home is a small country. Use the graphs to answer the questions.

Round your answers to one decimal where necessary.

a.Suppose that Home engages in trade and faces the world price,W=$6PW=$6. Calculate the consumer and producer surplus under free trade.

1. Consumer surplus with trade:

2. Producer surplus with trade:

b.Now, suppose that Home applies an import quota limiting the amount Foreign can sell to 2 units. The quota licenses are allocated to local producers. Calculate the consumer surplus and producer surplus with the quota.

1. Consumer surplus with quota:

2. Producer surplus with quota:

Calculate the quota rents earned at Home and the net effect of the import quota on the Home economy.

1. Quota rents earned:

2. Net effect of quota on Home:

c.Now, suppose the quota rents are earned by Foreign exporters instead. Calculate the net effect of this import quota on the Home economy.

1. Net effect of quota on Home:

(a) Home Market Price S $14 Feenstra/Taylor, International Economics, 5e @ 2021 Worth Publishers 4 2 4 5 6 8 Quantity(b) Import Market Price $8 . . Y* + t 6 . . M . . . . . . 2 O Import