Suppose that you have the following information on the supply and demand curves for imported sugar in the US: and , where is quantity demanded of imported sugar (millions of pounds); is quantity supplied of imported sugar (millions of pounds); is national income index (currently ) and is price per pound (in cents) of imported sugar.

1.On a sheet of graph paper, construct the supply and demand curves for imported sugar, showing clearly the relevant intercept values for each curve.

2.Calculate and illustrate in your graph the equilibrium price of imported sugar.

3.In an effort to support US sugar farmers, the US imposes restrictions on imported sugar.Suppose that the US does this by imposing a 20 cent per pound tariff (import tax) on imported sugar. (Hint: a tax can be analyzed here as an increase in cost to suppliers). Use your graph, plus calculations, to show exactly how such a tariff would affect the a) domestic price of imported sugar; b) quantity of imported sugar, c) tariff revenues collected by the government, and d) net import price received by foreign sugar producers after the tariff is imposed.

4.Use supply and demand graphs to show how the tariff on imported sugar affects a) the market for US-produced sugar; b) the US market for high-fructose corn syrup, a sugar substitute and c) the US market for sweetened (i.e. non-diet) soft drinks.

5.Finally, suppose that US income was expected to grow by a total of 25% over the next five years. Illustrate the impact of income growth on the market for imported sugar in terms of price and quantity, assuming that the tariff is retained.