Question

Please draw the graph

The figure below shows the hypothetical domestic supply and demand for baseball caps in the country of Spain. The world price ls also shown on the graph. Suppose that there are currently no import restrictions on baseball caps and that Spanish consumers are Indifferent between domestic and imported baseball caps. Now suppose that because of intense lobbying by domestic baseball cap manufacturers, the Spanish government decides to impose an import quota of 20,000 basebell caps per month. a. Use the graph below to show the effect of this import quota on domestic supply in this market Instructions: Use the tool provided 'Sd Q'to show the new total supply curve in the domestic market after the import quota takes effect. Plot only the endpoints of the line. Domestic Supply and Demand for Baseball Caps Spain 10 Tools SdtQ Pw" 2 010 20 30 40 50 60 70 80 90 100 Baseball caps (thousands per month) b The Spanish govenment could achieve the same immediate result for domestic producers and consumers by levying a tariff of per unit

Answer 1

a) Imposition of quota will look like as below: Domestic Supply and Demand for Baseball Caps Spain 10 9 si 8 7 5 20,000 3 Pw- 2 10 20 30 40 50 60 70 80 90 100 Baseball caps (thousands per month) The domestic supply curve will shift to the right as S1. World price will increase from $2 to $4 b) The same result can be achieved by levying a tariff equal to $4 - $2 = $2 per unit of good imported Price (E per cap)