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sd s a What is the effect of a United States guota on sugar of Q on the equilibrium in the U.S. sugar market? Hint: The answer depends on whether the quota binds (is low enough to affect the equilibrium) Show how a quota, Q, affects the total supply of sugar in the United States. Determine the American total supply curve with the quota and without the quota. 1.) Use the line drawing tool to draw the American supply curve without the quota. Label this line s 2.) Use the multipoint curved line drawing tool to draw the American supply curve with the quota. Label this line S Carefully follow the instructions above, and only draw the required objects. Q, Tons per year After plotting the final point of your multipoint curve, press the Esc key on your keyboard to end the line.

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Piice after quota -World Piice nports orts D with without Quota ota In the above figure, domestic demand for sugar is shown by demand curve, D and domestic supply of sugar is shown by the supply curve, S When there was no import quota in place, domestic price of sugar in United States was equal to the world price of sugar, Pw At world price, Pw, domestic producers in United States are supplying Q1 quantity of sugar and consumers are demanding Q4 quantity of sugar Q4 1 quantity of sugar is imported into the United States Now, if United States imposes a quota on the import of sugar in the United State As above figure shows that when United States impose a quota, domestic price in United States rises to Pd At price Pd, domestic producers are supplying Q2 quantity of sugar. Domestic consumers are demanding Q3 quantity of sugar Imports are now limited to Q3 Q2 due to imposition of import quota As we can see that domestic producers are gaining as they are able to increase their production and also are able to sell at higher price. So, imposition of quota will incur gain to domestic producers equivalent to area a. Foreign producers (those who get permission to sell) will also gain in terms of higher price and their gain would be equivalent to area c Domestic consumer will lose as they will be forced to pay higher price and thus have to reduce their quantity demanded. Their loss will be equivalent to area a+b+c+d All the loss incurring to consumers will not transfer to domestic producer and foreign producers as gain. Area b and d will be deadweight loss shows inefficiency promoted by the quota. Thus, gain of this policy accrues to domestic and foreign producers whereas loss accrues to domestic consumers

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