Drawn below is a diagram for a small importing county (importing cheese (C)) that can choose between
Question:
Drawn below is a diagram for a small importing county (importing cheese (C)) that can choose between an import tariff of ST per unit or an import-equivalent quota of AB units (large letters are used for distances and small letters are areas inside heavy borders). The initial domestic supply curve is So. Below you will compare the impacts on price and welfare (consumer surplus, etc.) of the tariff and quota, paying attention to how the quota rents are allocated or wasted.
The first question below refer to the situation before there is any shift in the supply curve.
Now suppose the domestic supply curve shifts up (backwards) to S 1 (this means the domestic cheese industry decided to supply less, perhaps because its costs go up for some reason). Compare impacts on imports on imports and demist prices with the tariff in place versus the quota in place.
In the diagram assume that distance AB = distance A?B?.
Given this analysis, what is the primary difference between tariffs and quotas when the domestic supply or demand curve shifts?
Fundamentals of biochemistry Life at the Molecular Level
ISBN: 978-0470547847
4th edition
Authors: Donald Voet, Judith G. Voet, Charlotte W. Pratt