Suppose the domestic supply and demand curves for running shoes in the U.S. are,

S = 10P - 300

D = 3000 - 20P

Let the free trade price be $50.

A. What is the equilibrium quantity of imports.

Answer:

Suppose a specific tariff of $10 per pair of shoes is imposed. Assume that the U.S. is a "small" country.

B. Depict the price effects of the tariff graphically on a US supply and demand diagram.

Answer:

C. Calculate the domestic welfare effects.

Answer:

D. What import quota could be levied to generate the same price effects? Explain how the welfare effects of the quota may differ from the tariff.

Answer:

E. Suppose instead that a voluntary export restraint is negotiated and set at the same quantity as in part (d) above. Calculate the welfare effects of the VER. How does it differ from the import quota and the tariff?

Answer:

F. Give two reasons why VERs may be implemented rather than import quotas or tariffs. Explain.

Answer: