Question

AGEC 3050 Test 3 -Compatibility Mode - Saved to this PC × Darrin Thurston File Home Insert DrawDesignLayout References Mailings Review View Help Tell me what you want to do Share Comments Question 5 The US has import quotas for sugar. Explain why. Explain the economic consequences of this policy on sugar producers and consumers in the US. Use graphs that show the economic impact. Ilint: Use concepts used in welfare economics. ЕЕ Page 5 of 5 811 words -+ 120% 9:37 PM Type here to search 5/1/2019

Answer 1

3 1 3

Suppose initially US imports sugar from rest of the world such that price is OA and the demand curve is DD and relevant supply curve is Sw.At this price OA , demand = AF , supply by domestic producers = AD and the imports = DF .

At this price , consumer surplus = 1+2 + 3+ 4 + 5 + 6

producer surplus = 7

If now US imposes quotas on sugar imports such that it restricts imports to MN , new supply curve with quota = Sw + quota such that price for domestic consumer and producer rise to OB ,then at this price , demand = BE , supply   by domestic producers =BC and imports = MN / CE

after quota , consumer surplus loss = 3+4 + 5 + 6

gain to producer surplus = 3

government revenue from quota (gain ) = 5

overall welfare loss to economy = 3+ 5 - 3-4 -5-6

= -4 - 6

this is the deadweight loss to the economy from imposition of quota .