10. What is a tariff and what is a quota in international trade?
In Tessland, suppose the domestic demand curve for sugar is given by:P= 40 – 0.008Q and the domestic supply curve is given by:P= 10 + 0:002Q:
i. In the absence of any trade, what is the equilibrium price and quantity of sugar? How much are the consumer surplus and domestic producer surplus?
ii. Suppose the equilibrium price of sugar in the world market is ^P= 12. How much are the new consumer surplus and new domestic producer surplus?
ii. Suppose Tesslandís government imposes tariff is $2 per unit (a ton) of sugar.