Costa Rica is a “small” country and assumed to be unable to affect world prices. It imports blueberries at the price of 10 dollars per box.
The Domestic Supply and Domestic Demand curves for boxes are: S = 60 + 20P D = 1160 − 15P
a) Assume Costa Rica is completely open to trade. What is the equilibrium price and quantity consumed? How much is produced domestically, and how much is imported?
b) Now consider the effect of an import quota of 400 boxes. What happens to the price of Blueberries and quantity consumed?
c) Who wins and who loses? Discuss consumers, domestic producers, and importers (Be sure to compute the change in their welfare).