Question

1) The United States sugar industry has enjoyed trade protection for several years. As a result, sugar prices in the U.S. are higher than the average world price. Suppose that the domestic demand and domestic supply for sugar are as provided in the table below (assume continuous, linear domestic demand and supply curves which include the following data points for sugar): | Price ($ per Quantity Demanded Domestically Quantity Supplied Domestically pound) (Millions of Pounds per Year) (Millions of Pounds per Year) 42,000 0.06 36,000 4,500 0.12 30,000 9,000 0.18 24,000 13,500 0.24 18,000 18,000 0.30 12,000 22,500 0.36 6,000 27,000 0.42 31,500 a. Suppose that, initially, the U.S. is entirely closed to international trade. What equilibrium price and equilibrium quantity would exist in the U.S. in the absence of trade? Calculate the size of the consumer surplus, producer surplus, and net benefits to society that would exist in the U.S. in the absence of trade. (2 points)

please only do problem d e and f thanks!

Answer 1

A 0.15 BAD EN 0 10000 20000 30000 40000 50000

D) Imports at the world price = 30000-9000 = 21000

Imports at the world price+tariff = 24000-13500 = 10500

so, Imports decreases after the imposition of the tariff

E) CS under free trade = A+B+C+D+E+F = 0.5*30000*(0.42-0.12) = 15000*0.3 = 4500

CS under tariff = A+F = 0.5*24000*(0.42-0.18) = 2880

CS decreases by 4500-2880 = 1620

PS under free trade = G = 0.5*9000*(0.12-0) = 540

PS under tariff = B+G = 0.5*13500*(0.18-0) = 1215

PS increases by 1215-540 = 675

F) DWL = C+E = 0.5*(13500-9000)*0.06 + 0.5*(30000-24000)*0.06

= 135+180 = 315

Government revenue = D = 10500*0.06 = 630