6. Effects of a quota on domestic prices he following graph shows the domestic d

Question

6. Effects of a quota on domestic prices he following graph shows the domestic demand for and supply of barley in Canada. The horizontal green line shows the world price of S2 for a bushel of barley. Canada imports barley primarily from the United States. Assume that the amount demanded by any one country does not affect the world price of barley. Use the graph input tool to help you answer the rolowing questions. You will not be graded on any changes you make to this graph. (Note: Once you enter a value in a white field, the graph and any corresponding amounts in the grey fields will change accordingly.) Graph Input Tool 10 Price Dollars per bushel) Domestic demand Millions of bushels) 10 Mllions of busheis) miionts of bushels) 30 0 5 10 15 20 25 30 35 40 45 50 QUANTITY Millons of bushels of barley) Canadian government decides to impose trade restrictions on barley imports by setting a quota or 10 million bushels of barley. With the quota, the price of barley in Canada will be per bushel. e Canadian government explains that it is necessary to impose trade restrictions on barley to protect workers in the domestic barley industry. Assume that the Canadian government would like to generate government revenue through its protectionist policies. Which of the following would provide the Canadian government with revenue? Check all that apply D A quota on barley in which the quotas are distributed via lottery A tariff on U.S. barley A quota on barley in which import licenses are given to the U.S. government for free distribution to U.S. barley producers D A quota on barley in which import licenses are auctioned off to U.S. barley producers

Explanation / Answer

1) The Canadian government decides to impose trade restritions on barley imports by setting a quota of 10million bushels of barley. With the quota, the price of barley in Canada will be $2 per bushel.

Explanation :

It is already mentioned in the problem that the amount demanded by any one country does not affect the world price of barley, so even if Canada puts a 10 million quota of barley that will not affect the price. Also the graph shows that the pirce is $2 and it remains constant at 10 million and 40 million bushels.

2) The Canadian Government explains that it is necessary to impose trade restrictions o barley to protect workers in the domestic barley industry. Assume that the Canadian government would like to generate government revenue through its protectionist policies. Which of the following would provide the Canadian government with revenue?

A tariff on US barley

Explanation :

Canadian Government wants to put restrictions to protect the domestic barley industry and through its protectionist policies want to generate revenues for the government. Therefore, if a tariff is put on US barley then the import of barley from US will come down and the domestic prodcuers will find out way for domestic production of barley in canada, in this way domestic production can be increases, more employment can be generated and the import expenses can be decreased and the government can get more revenue.

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