PARTIAL EQUILIBRIUM MODEL with QUOTAS

HOME: DemandP = 100 - QFOREIGNDemand P = 200 -Q

Supply P = QSupply P = Q

(3 points)(a)Suppose the importer imposes a quota of 150 Units.Using the Excess demand and Supply curves, explain how the tariff affects world prices.Give the intuition.

(2 points)(b)What do we mean by a quota price?

(5 points)(c)Determine world prices with the quota and the impact on each country's Social Surplus.Recall that SS = CS + PS + quota revenue.

(4 points)(d)Show (graphically and mathematically) whether the importer gains from the import quota.Explain the basis for any gains or losses.

(6 points)(e)Suppose the exporter retaliated with an export tariff. What is their optimal export tariff?graphically or use calculations.In either case, explain your reasoning.