Question 3:Suppose that coal industry is perfectly competitive where the world price per unit is $10. Bulgaria, a small country, aims to protect its coal industry from international competition. The domestic demand and supply curves for coal is given by:

D= 27510P S= 50 + 5P

1. (a)Suppose Bulgaria imposes a specific tariff in the amount of $3 per unit on imported coal. Show the welfare effects of this tariff on an appropriate graph. Compute the net effect on welfare. (10)
2. (b)Find the quota level that is equivalent to the $3 specific tariff. Write down two scenarios where this quota is not equivalent to the tariff in terms of its welfare implications. (10)
3. (c)There are inefficiencies at the border that make it difficult to collect tariffs or implement quotas. Bulgaria is now considering a price support program that will set a lower bound for the domestic coal price at $13. Is this policy is equivalent to a $3 specific tariff? Explain. (30)