Question

Critics argue that if Congress wants to make the tax code more equitable, a good place to start would be removing unfair tariffs and quotas. Today, there are more than eight thousand import tariffs, quotas, so-called voluntary import restraints, and other import restrictions. Tariffs and quotas cost consumers roughly $80 billion per year, or about $800 for every American family. Some of the tightest restrictions are reserved for food and clothing that make up a large share of low-income family budgets.
The domestic shoe market shows the effects of import controls on a large competitive market. Assume market supply and demand conditions for shoes are:
QUS = -50+ 2.5P (Supply from U. S. Producers)
QF = -25+ 2.5P (Supply from Foreign Producers)
QD = 375 - 2.5P (Market Demand)
Where Q is output (in millions), and P is the market price per unit.
A. Graph and calculate the equilibrium price/output solution assuming there are no import restrictions, and under the assumption that foreign countries prohibit imports.
B. Use this graph to help you algebraically determine the amount of consumer surplus transferred to producer surplus and the deadweight loss in consumer surplus due to a ban on foreign imports. Explain.



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  • CreatedFebruary 13, 2015
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