Study Guide for Microeconomics
9th Edition
ISBN: 9780134741123
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Question
Chapter 9, Problem 7RQ
To determine
Relevance of import quota or tariff.
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Suppose the market for steel is expressed as follows:
Domestic demand: p = 40 - 0.2q, or q = 200 - 5p
Domestic supply: p = 0.2q, or q = 5p
Domestic supply (foreign): p = 0.1q, or q = 10p
a) What is the equilibrium price and quantity if there is free trade, with no restriction on imports?
b) What is the equilibrium price and quantity if the government imposes a binding import quota of 20 units? Depict parts a and b on a single graph.
c) How are US steel firms affected by the quota? US automakers? Explain briefly.
If the size of a tariff raises the price of an imported item $20 per unit which in turn reduces the quantity of imports by 10%, what would be the effect on the price of an imported item, if the Government imposed a 10% import quota, which requires imports to fall by 10%
Graphically explain the negative effects of quotas. How about subsidies? Label and explain results in detail.
Chapter 9 Solutions
Study Guide for Microeconomics
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- Which of the following is an example of a quota? a) The United States sets a minimum or maximum price that can be charged for baked goods. b)The United States limits the number of immigrants allowed to enter the country. c) The United States sets a limit on how many firms can operate in the market for cell phones. d) The United States imposes a regulation requiring consumers to be licensed before buying pens.arrow_forwardSuppose the government imposes a quota on imports of foreign-made steel. Assume that the quota has an effect on the market for steal. The result will be that the domestic price of steel Answer 1 Question 8, the domestic production of steel Answer 2 Question 8, and imports of foreign-made steel Answer 3 Question 8arrow_forwardSuppose a government imposes a quota on the sale of an agricultural commodity in an attempt to boost the welfare of producers. Will this policy be successful?arrow_forward
- The effect of an import quota is to a. lower the price and the quantity of imports. b. raise the price and the quantity of imports. c. raise the price and reduce the quantity of imports. d. raise the quantity and reduce the price of imports.arrow_forwardAnalyze with the help of a graph how an export subsidy affects the terms of trade of the country providing the subsidy. Is the export subsidy desirable from the perspective of overall social welfare of the country? Explain.arrow_forwardSuppose that, as part of an international trade agreement, the U.S. government reduces the tariff on imported coffee. Will this affect the supply or the demand for coffee? Why?arrow_forward
- Suppose there was previously an import tariff imposed on imported shoes, but the government decides to eliminate the tariff. We can assume that consumer surplus will _____ and producer surplus will _____ as a result of eliminating the tariff. increase or decrease?arrow_forwardSuppose a domestic market in a country is perfectly competitive. The domestic market is small and cannot influence the international price. Assume the country imports from the international market. Which of the following is correct about the effect of an import quota? Group of answer choices A) Increases domestic producer surplus B) Increases import quantity C) Increases total surplus in the domestic market D) Decreases total domestic quantity supplied E) None of the abovearrow_forwardWhat would be the effects of imposing a quota on imported cars from Japan? Explain the effects for the American consumers and producers.arrow_forward
- Part F. If home country imposes a specific tariff of $15 per unit of good Y imported, what is the tariff revenue? Show your work. Part G. Assume that instead of a specific tariff, an import quota will be used on good Y. What is the amount of the quota that will have identical effects (in terms of amount of good Y imports and the domestic price of good Y) as the specific tariff of $15? Explain your reasoning. Part H. Consider the use of import tariff vs. import quota in Home country that will result in the same amount of good Y imports and the domestic price of good Y. If quota rents are given to Foreign country, which policy, i.e., import tariff vs. import quota, is preferable by Home country on the basis of its effect on social welfare? Explain your reasoning.arrow_forwardSuppose the U.S. government increases the amount of steel that can be exported to foreign countries. What will happen in the domestic market for steel? A.) The domestic demand for steel will increase, leading to a lower equilibrium quantity. B.) The domestic supply of steel will decrease, leading to a higher equilibrium quantity. C.) The domestic supply of steel will increase, leading to a lower equilibrium quantity. D.) The domestic demand for steel will decrease, leading to a higher equilibrium quantity.arrow_forwardNow, suppose that Home applies an import quota limiting the amount Foreign can sell to 2 units. The quota licenses are allocated to local producers. Calculate the consumer surplus and producer surplus with the quotaarrow_forward
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