Purchase Solution

Effect of Free Trade, Tariffs and Quotas on the Sugar Market

Not what you're looking for?

Ask Custom Question

Tasmania is a small region. Suppose the following equations characterize Tasmania's demand (Qd) and supply (Qs) for sugar:
Qd = 100 - P
Qs = P
The price of sugar in world markets is PW = $20

a) What would be the equilibrium price in Tasmania's sugar market if imports were totally restricted?
b) If Tasmania opens its sugar market to free trade will it import or export sugar?
c) How much sugar will it import or export under free trade?
d) Now suppose the government of Tasmania imposes a tariff of 20% on sugar imports. Calculate the new price of sugar in Tasmania's domestic market. How much will they import after the tariff?
e) Now suppose the government of Tasmania decides to impose a quota of 30 units on sugar imports. Calculate the 'quota equivalent' tariff rate which would have the same effect on the amount of sugar imports.
f) Calculate the change in social welfare in parts d and e above (assume the license holders of the quota are citizens of Tasmania). Decompose the effects on welfare of both tariff and quota into consumer surplus, producer surplus and government revenues. Determine who gains and who loses from the tariff and from the quota.

Attachments
Purchase this Solution
Solution Summary

This solution shows how to calculate the effects on Tasmania's economy of opening its sugar market to foreign trade. The solution includes a section breaking down the effect of tariffs and quotas on Tasmania's social welfare.

Solution Preview

a) Let Qs = Qd
P = 100 - P
2P = 100
P = $50

b) With free trade, Tasmania will import sugar because it can buy sugar more cheaply abroad.

c) At the world price of $20, the quantity of sugar demanded in Tasmania is (Qd = 100 - 20 =) 80. The quantity of sugar supplied in Tanzania is (Qs = P =) 20. The quantity imported is the difference: (80 - 20 ...

Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

View More Free Quizzes
Related BrainMass Solutions

  • U.S.'s comparative advantage

    The market for chicken sandwich, considered a normal good, is in equilibrium. Examine the effect of the following events on the equilibrium price and quantity of chicken sandwich.

  • international sanctions, tariffs, quotas, and trade restrictions

    How do tariffs and sanctions on the import of auto engines into the U.S. affect production? How do international sanctions, tariffs, quotas, and trade restrictions affect international trade and costs of production?

  • Quotas vs tariff dilemma

    However, fixing a maximum limit on supply, there is a restriction on the free play of market forces. Step 2 Both quotas and Tariffs are measures of protection but quotas are more likely to protect old and inefficient firms.

  • Trade controls: Tariffs, Subsidies, and Quotas/Flex Exchange

    The effect of tariffs on the relationship of trading partners is to reduce competition from foreign producers. It is a negative effect.

  • sanctions, tariffs, quotas, and trade restrictions

    Otherwise, such tariffs are a barrier to a free market economy. How do international sanctions, tariffs, quotas, and trade restrictions affect international trade and costs of production?

  • The impact of trade barriers on Belize and Japan

    Trade Barriers and their effect on market access to Belize and Japan In order to be able to look at the effect trade barriers can have on market access to countries like Belize and Japan, it is best to take a look at what are some the arguments for and

  • Growth and Policies of Jurisdiction

    Like import tariffs, quotas restrict trade, to the benefit of domestic producers, but at the expense of both consumers (and any firms who use the good as an input) in the domestic economy and producers and consumers of the foreign economy on which the

  • tariffs and import quotas

    Evaluatee the use artificial trade barriers, such as tariffs and import quotas, as a means of achievind and maintaining full employment.

  • Imposition of tariffs and quotas are

    171798 Imposition of tariffs and quotas What parties benefit from the imposition of tariffs and quotas? What parties lose from the imposition of tariffs and quotas?

View More Related Solutions