–Explain all your answers!
- (25 pts) Suppose the United States (a large country) placed a quota on the import of widgets. Use a diagram to show the maximum amount that importers (as a group) would be willing to pay for the right to import to the United States.What happens to the welfare of the United States if the lobbyists pay that maximum amount?What happens to the welfare of the rest of the world in this case? Think about the following:Â§ What happens to the world price of widgets?Â§ What happens to the welfare (or surplus) of the foreign producers?Â§ What happens to the welfare of the foreign buyers?
- (25 pts) Suppose the domestic demand and supply for pairs of shoes in a small open economy are given byQ = 700 â€“ 2P (demand) Q = 100 + P (supply)Where Q denotes quantity and P denotes price.
- If the world price were $75, what is the free trade level of impurts?
- Suppose that the country imposes a quota of 150 pairs of shoes. How much will the domestic pricerise?
- What will be the welfare effects on this country of a quota of 150 pairs of shoes?
- Suppose instead that this country negotiates a VER of 150 pairs of shows with its suppliers. What arethe welfare effects of this policy? Who gains and who loses?
- (25 pts) Define dumping. What are the welfare costs of dumping?Should we as a country allow goods to be dumped into our markets? Why or why not? Are there certain circumstances in which dumping should be allowed and other circumstances where dumping shouldnâ€™t be allowed? What would you consider when determining whether dumping should be allowed or penalized?
- (25 pts) Briefly describe how countervailing duties, antidumping measures, and Section 301 of the U.S. trade law work. Describe how they protect domestic (U.S., in this case) interests. Are there people or firms in the United States that are hurt by the U.S. government pursuing these policies?