n 2018, the Trump administration raised tariffs on aluminum by 10 percent. Argentina, the 18th largest producer of aluminum, chose to negotiate a quota instead of the 10 percent tariff. (Assume that the policy does not impact the world price of aluminum, and that aluminum imported from different countries are perfect substitutes.)

a. What is a quota? Using a graph, show the similarities between a quota and a tariff? Why might an exporting country, like Argentina, prefer the USA to apply a quota instead of a tariff? (6 marks)

b. The quota on US imports of Argentinian aluminum is said to be binding with an ad-valorem tariff equivalent of 10 percent. Explain what that means for US imports from Argentina and (internal) prices in the USA? (2 marks)

c. Explain what a tariff-rate quota is and how it works (using a graph)? How does it differ from a simple quota? (6 marks)

The tariffs and quotas on aluminum are still in place today. Recently, the Biden administration implemented a large infrastructure plan that raised demand for both domestic and imported aluminum.

d. Compare using graphs, the impact on internal prices, imports and welfare of: (i) a rise in demand under a binding quota, and (ii) a rise in demand under a tariff. Which form of protection - tariffs or quotas - is more restrictive, why? (8 marks)

e. You have been asked by the Argentinian government for advice. Do you think a quota is still the best strategy for Argentina? If renegotiation with the USA is possible, what alternative policy/ies would you recommend and why? (6 marks)