Consider the market for vegetable fiber. World price is $9.00 per pound. Unlimited quantities are available for import in the US at that price. The US domestic supply is:
Qs = 2/3p and US demand is Qd = 40 - 2p
A) If there are no tariffs, quotas or other trade restrictions in the US what will be the US price, production level and amount of imports? If possible graph the above market.
B) If the US imposes a tariff of $9 per pound, what will be the US price and level of of imports? How much revenue will the government earn from the tariff? How large is the dead weight loss?
C) If the US has no tariff but imposes a quota of 8 million pounds, what will be the US domestic price? What is the cost of the quota for US consumers of the fiber (the loss of consumer surplus)? What is the gain for US producers?