The U.S. sugar market is illustrated in figure 1, distributed with this exam.S is the U.S. supply (and marginal cost) curve, DD is the U.S. demand curve for sugar, DI is the U.S. demand for imported sugar (given by the horizontal difference between U.S. supply and demand), and SI is the supply of sugar to the United States from the rest of the world (ROW).Use the labels on the price axis, the quantity axis, and the welfare areas to answer the following questions.

1. (10 points)Assume no U.S. sugar policy.

Complete row 1 of table 1 to show the levels of (a) quantity produced, (b) the price received by producers, (c) U.S. consumption, (d) the price paid by U.S. consumers, (e) U.S. producer surplus, (f) U.S. consumer surplus, and (g) total U.S. economic surplus.

2. (20 points)Assume an import quota, I1 is introduced and given to U.S. middlemen.

Complete row 2 of table 1, to show the magnitude and direction of the effect of the introduction of the import quota on changes in (a) quantity produced, (b) the price received by U.S. producers, (c) U.S. consumption, (d) the price paid by U.S. consumers, (e) U.S. producer surplus, (f) U.S. consumer surplus, (g) U.S. middlemen surplus, and (h) total U.S. national economic surplus.

3. (40 points)

a.What are the effects of the import quota policy (in table 1) on total U.S. welfare?Can we say for sure whether the United States gains or loses?

b.Suppose the quota is given to foreigners who supply imports to the United States.Compare the effects on total U.S. welfare from this policy and the import quota owned by U.S. middlemen.

c.Suppose, instead of a quota, a tariff on imports is used to support the price at the same level.What is the per unit tariff rate (in terms of the labels on figure 1) and what are the different welfare effects compared with the import quota owned by U.S. middlemen.

Table 1: Effects of an Import Quota on Sugar U.S. U.S. U.S U.S. U.S U.S J.S U.S Quantity Producer Quantity Consumer Producer Consumer Middlemen National Produced Price Consumed Price Surplus Surplus Surplus Surplus 1. No Policy Not applicable (levels of variables in this row) 2. Effects of Introducing an Import Quota (1), Given to U.S. Middlemen (changes in this row)9 Figure 1. Effects of U.S. Sugar Policies U.S. Market International Market Price Price S a SI t V C e d f P 2 X 1 1 P. DI Do 1 P 0 Q1 Q2 Q3 Q4 Q5 0 11 12 U.S. Quantity Traded Quantity