In Smlandia, a small country, the government is considering protecting the market of timber. The international free-trade price of timber is $400 per ton. At that price, demand for timber in Smlandia is 200,000 tons per year, while production is 120,000 tons per year. The government is pondering two different measures: an ad valorem tariff of 20% on free-trade price and an equivalent quota. With the tariff, consumption is Smlandia would be 180,000 tons per year, whereas production would increase to 160,000 tons.

1) Draw a graph of market demand and supply of timber in Smlandia (assuming they are linear) using all the above information.

2) What is the decrease in consumer surplus generated by the tariff? And the increase in producer surplus? 3) What is the government revenue generated by the tariff? And what is the net welfare loss for the country from the tariff? 4) Suppose Smlandia applies a quota rather than a tariff. What would be the conditions under which the quota generates the same deadweight loss and the same government revenue of the tariff?