Home’s demand curve for wheat is D= 80 – 2P and its supply curve is S=...

Home’s demand curve for wheat is D= 80 – 2P and its supply curve is S= 2P - 20. Foreign’s demand curve for wheat is D*= 80– 4P* and its supply curve is S*= 6P*- 30. You should very carefully draw each demand and supply curve, since your answers below must be reasonably close to correct. A small featureless graph will not be sufficient.

Now suppose Home imposes a quota of 20 on wheat imports. Quota rights are given to the Foreign government to give to its firms.

(c) What is the resulting equilibrium price of wheat in each country?

(d) Carefully graph the changes in consumer surplus, producer surplus, and government revenue in each country due to the quota.

(e) What tariff leads to the same outcome as (d)?

(f) Carefully graph the changes in consumer surplus, producer surplus, and government revenue in each country due to the tariff in (e)?

(g) How can the Home government change the way quota rights are assigned so that the outcome in (e) is the same as (f)?

Expert Solution

Rahul Sunny answered 7 months ago

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