Question

In: Economics

Suppose that a country requires special inspections on all imported food but it exempts domestic production...

Suppose that a country requires special inspections on all imported food but it exempts domestic production from similar inspection. What effect would this have on imports, domestic production, prices, and quantity consumed?

Explain fully via analysis of consumer – Producer Surplus graph

Solutions

Expert Solution

To protect the domestic production and there is inspection on imports and not on the domestic production,

thi is mainly done by increasing the prices of the product imported and in such case there will be increase in price of import and the price of domestic production is same.

lets say the price of domestic production is P then the price of Imported goods will be P1 due to cess and tariffs implied on it.

by this there will be loss in consumer as well as producer surplus if the imported goods are sold by creating deadweight loss.

according to the graph, if P is the price then there will be no loss in total surplus or say consumer surplus and producer surplus

f P is price then consumer surplus is FPB AND PRODUCER surplus is ECBP.

but if P1 price is charged then triangle ABC is the loss in the total surplus.

If price P1 then consumer surplus is FAP and producer surplus is ECP


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