Suppose Nation A imposes a 100% tariff on oranges. c)How much is the tariff reve

Question

Suppose Nation A imposes a 100% tariff on oranges.

c)How much is the tariff revenue (in dollars)?

Suppose instead that Nation A decides to impose an import quota of 30 oranges.

d)Now what will be the amount of oranges consumed, produced domestically and imported in Nation A? What will be the price of oranges?

e)In this case, what will be the quota rents?  

f)What would the role of import licenses have in this case?

g)What would be the difference between an import quota of 30 and a Voluntary Export Restraint of 30?

h)Suppose demand for oranges is expected to increase in Nation A. What would trade policy instrument would local producer prefer, a quota or a tariff? WHY?

PART 1 The figure below represents the market for oranges in Nation A. Suppose A is a small country and the world price for oranges is $1. 4 2 1 10 20 30 40 50 60 70 80 Q

Explanation / Answer

Tariff revenue = tariff multiplied by imports. Here tariff is 100% of 1=1.And imports is equal to difference between domestic production and consumption at price 2(1before tariff and 1 after tariff) =50-20=30 Thus tariff revenue =30.1=30

Now with quota oranges consumed will be 20+30=50 . domestic production is 20. 30will be imported. This can be found by drawing price line equal to 2 horizontally as shown in figure. Note imports is equal to difference between consumption and domestic production . supply shows domestic production and demand shows domestic consumption at price 2. Price will be 2

Quota rent=2-1.30=30.qota rent is calculated by subtracting original price from new price and multiplying it by amount of quota

Import license will allow their holders to import quantity equal to 300 no more quantity can be imported. They will gain quota rent equal to 30.further due to quota licenses the domestic producers will produce higher quantity and price will be higher by 1 on each commodity.

Can answer only 4 parts according to chegg policy. Please send other parts as separate question. Please like answer

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