The following graph represents the domestic supply and demand for coffee a number of years ago.
a. In the absence of trade, what is the equilibrium price and equilibrium quantity?
b. The government opens the market to free trade, and Columbia enters the market, pricing coffee at $1 per pound. What will happen to the domestic price of coffee? What will be the new domestic quantity supplied and domestic quantity demanded? How much coffee will be imported from Columbia?
c. After numerous complaints from domestic coffee producers, the government imposes a $0.50 per pound tariff on all imported coffee. What will happen to the domestic price of coffee? What will be the new domestic quantity supplied and domestic quantity demanded? How much coffee will now be imported from Columbia?
d. How much revenue will the government receive from the $0.50 per pound tariff?
e. Who ultimately ends up paying the $0.50 per pound tariff? Why?
