Question
Assume Canada is a small open economy that imports some of the grapes it consumes.
a) Draw a diagram showing the equilibrium under free trade in grapes
b) Show the effects of a $1 per kg tariff on imported grapes.
Show the effect on : imports, Canadian production, consumption, the government's revenue, the change in (Canadian) producer surplus, consumer surplus, and total surplus.
c) What would be the effect of replacing the import tariff with an import quota? Which would be better? Explain.