Question: International Trade Question 1 (30 points) Consider a model with two countries, the US and Brazil, who trade in coffee. The US is a net

International Trade

Question 1 (30 points) Consider a model with two countries, the US and Brazil, who trade in coffee. The US is a net importer of coffee, and Brazil is a net exporter. The demand curve for coffee within the US is given by: BUS = 60 P and the supply is given by: SUS = P. There is NO consumer demand for coffee in Brazil. The Brazilian supply curve is given by: SB 2 P. 1. (10 points) Find the equilibrium world price and the quantity traded under free trade, and graph the equilibrium. 2. (10 points) Now, suppose that the US imposes a quota that limits its imports of coffee to 18 units. Show how this changes the world price and the domestic price in the US, and graph the new equilibrium. 3. (10 points) Assume that the quota licenses are distributed to American traders. Cal culate the production distortion, the consumption distortion, and the termsoftrade benet for the US, and show these in a graph. Is the US better off because of the quota? How would this answer change if the quota licenses were given to Brazilian traders? Explain.|

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