Imports of peanut into the United States are subject to a quota, currently set at about...

 

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Imports of peanut into the United States are subject to a quota, currently set at about 45 million pounds (Ib.) per year. After the quota was imposed, the price of peanuts in the country increased by 50 percent to $1.50/lb. Given the domestic supply and demand functions for peanuts are P = 0. 10s dan P+ 0.05Qd = 4.5 respectively. a) Illustrate the free-trade equilibrium in the market for peanuts. Then show (by calculation) the quota's effects on domestic consumption, domestic production, imports and price. Label carefully. b) What are the quota's welfare effects, including both the distributional effects and the overall (net) effect on the United States? Show your work and relate the effects to your diagram in part (a). c) In 1990, a severe drought hit Georgia, where most U. S. peanuts are grown. Illustrate the effects of the drought, by assuming that the slope of the related curve increased by 0.30, the price of peanuts increased to $2.00/lb. and policy makers do not change the quota. Show clearly what happen to domestic production, domestic consumption, and imports as a result of the drought? Imports of peanut into the United States are subject to a quota, currently set at about 45 million pounds (Ib.) per year. After the quota was imposed, the price of peanuts in the country increased by 50 percent to $1.50/lb. Given the domestic supply and demand functions for peanuts are P = 0. 10s dan P+ 0.05Qd = 4.5 respectively. a) Illustrate the free-trade equilibrium in the market for peanuts. Then show (by calculation) the quota's effects on domestic consumption, domestic production, imports and price. Label carefully. b) What are the quota's welfare effects, including both the distributional effects and the overall (net) effect on the United States? Show your work and relate the effects to your diagram in part (a). c) In 1990, a severe drought hit Georgia, where most U. S. peanuts are grown. Illustrate the effects of the drought, by assuming that the slope of the related curve increased by 0.30, the price of peanuts increased to $2.00/lb. and policy makers do not change the quota. Show clearly what happen to domestic production, domestic consumption, and imports as a result of the drought?

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a The following figure shows free trade market P and ... View the full answer