Import quota / Free trade

5. An article about sugar beet growers in The Wall Street Journal (June 26, 1990) explained that "the government props up domestic sugar prices by curtailing imports of lower-cost sugar. Producers are guaranteed a 'market stabilization price' of $0.22 a pound, about $0.99 higher than the current world market price." The government maintains the higher price by imposing an import quota. A. Illustrate the effect of this quota on the U.S. sugar market. Label the relevant prices and quantities under free trade and under the quota. B. Analyze the effects of the sugar quota using the tools of welfare analysis. C. The article also comments that "critics of the sugar progr... click for more

Equilibrium prices

1. The United States represents a small part of the world orange market. a. Draw a diagram depicting the equilibrium in the U.S. orange market without international trade. Identify the equilibrium price, equilibrium quantity, consumer surplus, and producer surplus. b. Suppose that the world orange price is below the U.S. price before trade, and that the U.S. orange market is now opened to trade. Identify the new equilibrium price, quantity consumed, quantity produced domestically, and quantity imported. Also show the change in the surplus of domestic consumers and producers. Has domestic total surplus increased or decreased?

Free Trade / Surplus

2. The world price of wine is below the price that would prevail in the United States in the absence of trade. a. Assuming that American imports of wine are a small part of total world wine production, draw a graph for the U.S. market for wine under free trade. Identify consumer surplus, producer surplus, and total surplus in an appropriate table. b. Now suppose that an unusual shift of the Gulf Stream leads to an unseasonably cold summer in Europe, destroying much of the grape harvest there. What effect does this shock have on the world price of wine? Using your graph and table from part (a), show the effect on consumer surplus, producer surplus, and total surplus in the United... click for more

NAFTA / no-trade pricing

3. According to an article in The New York Times (Nov 5, 1993), "many Midwest wheat farmers oppose the North American free trade agreement as much as many corn farmers support it." For simplicity assume that the United States is a small country in the markets for both corn and wheat, and that without the free trade agreement, the United States would not trade these commodities internationally. (Both of these assumptions are false, but they do not affect the qualitative responses to the following questions.) a. Based on this report, do you think the world wheat price is above or below the U.S. no-trade wheat price? Do you think the world corn price is above or below the U.S. no-trade co... click for more

Comment on a quote regarding import pricing

4. Senator Ernest Hollings once wrote that "consumers do not benefit from lower-priced imports. Glance through some mail-order catalogs and you'll see that consumers pay exactly the same price for clothing whether it is U.S.-made or imported." Comment.