Consider the following situation: The world price of oranges is $15 per bushel. The domestic supply...

Consider the following situation: The world price of oranges is $15 per bushel. The domestic supply of oranges is 100 + 2(P) and the domestic demand for oranges is 500 – 5(P). Assume for now that this is a small nation that is not able to affect the world market. Show specific results (75 points)

How would a tariff of $10 per bushel affect this nation? (Consider gains and losses)
How would a quota of 100 bushels affect the nation?
What if there is a social benefit (not captured in the price) of $5 per bushel to people eating oranges? How does this affect your answer to (a) above?
How would your answer to (c) change if the nation were importing something to which there was an associated negative externality?
Assume now that the nation is large and that it CAN affect the world market. Explain what happens to the world market for oranges when the tariff is passed. Be sure to discuss terms of trade, gains and losses, impact on the factor markets.

Expert Solution

Rahul Sunny answered 8 months ago

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