Problem
Guatemala represents a small part of the world poultry market and is fully open to trade. Suppose a $0.10/kg tariff is imposed on poultry imports. Based on Figure 17P-2 (above), answer the following.
a. What is the quantity of poultry consumed and produced in Guatemala under the tariff? What is the quantity of imports?
b. Now suppose the tariff is eliminated and instead the world price of chicken feed increases significantly. This causes the world price of poultry to rise from $0.30/kg to $0.40kg. What is the quantity of poultry now bought and sold in Guatemala? What is the quantity of imports?
c. Compare the efficiency of the two situations. Calculate the deadweight loss under the tariff. Calculate the deadweight loss resulting from the higher price of chicken feed.
