6. Effects of a quota on domestic prices The following graph shows the domestic

Question

6. Effects of a quota on domestic prices The following graph shows the domestic demand for and supply of barley in Canada. The horizontal green line shows the world price of $2 for a bushel of barley. Canada imports barley primarily from the United States. Assume that the amount demanded by any one country does not affect the world price of barley Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph (Note: Once you enter a value in a white field, the graph and any corresponding amounts in the grey fields will change accordingly.) Graph Input Tool Price (Dollars per bushel) Domestic demand (Millions of bushels) Imports (Millions of bushels) 2 Supp Domestic supply (Millions of bushels) 40 10 30 Demand 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Millions of bushels of barley) The Canadian government decides to impose trade restrictions on barley imports by setting a quota of 10 million bushels of barley. With the quota, the price of barley in Canada will be$ per bushel

Explanation / Answer

The price of by which Canadian Government decide to import trade restriction on barely is 10 million * $2 (as price is $2).

So answer would be $20 million.

Now,

The Canadian Government like to generate the revenue through the quota on barely in which import licenses are given to the U.S. government for the free distribution to the U.S. barely producers i.e. option b is the right answer as per the situation.

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