The United States currently imports all of its coffee. The annual demand for coffee by U.S. consumers is given by the demand curve Q = 250 – 10P, where Q is quantity (in millions of pounds) and P is the market price per pound of coffee. World producers can harvest and ship coffee to U.S. distributors at a constant marginal (= average) cost of $8 per pound. U.S. distributors can in turn distribute coffee for a constant $2 per pound. The U.S. coffee market is competitive. Congress is considering a tariff on coffee imports of $2 per pound. i. If there is no tariff, how much do consumers pay for a pound of coffee? What is the quantity demanded? ii. If the tariff is imposed, how much will consumers pay for a pound of coffee? What is the quantity demanded?
b. The United States currently imports all of its coffee. The annual demand for coffee by U.S. consumers is given by the demand curve Q = 250 – 10P, where Q is quantity (in millions of pounds) and P is the market
i. If there is no tariff, how much do consumers pay for a pound of coffee? What is the quantity demanded?
ii. If the tariff is imposed, how much will consumers pay for a pound of coffee? What is the quantity demanded?
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