7. Effects of a quota on domestic prices The following graph shows the domestic

Question

7. Effects of a quota on domestic prices The following graph shows the domestic demand for and supply of barley in Canada. The horizontal green line shows the world price of $2 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 following 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) Supp Domestic Demand (Millions of bushels) Domestic Supply (Millions of bushels) 40 10 Imports (Millions of bushels) 4 mand 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Millions of bushels of barley) The Canadian government decides to impose trade restrictions on barley imports by setting a quota of 10 million bushels of barley. With the quota, the price of barley in Canada will be $ per bushel

Explanation / Answer

The given graph shows that if barley is priced at $4 per bushel then in that case quantity demanded is 30 million bushles while quantity supplied is 20 million bushles.

So, imports will be (30 million - 20 million) 10 million bushels.

Thus,

The Canadian government decides to impose trade restrictions on barley imports by setting a quota of 10 million bushles of barley.

With the quota, the price of barley in Canada will be $4 per bushel.

The Canadian government can raise revenue through following two options -

1. A quota on barley in which import licenses are auctioned off to US barley producers.

2. A tariff on US barley.

The correct answer is the option (3) and (4).

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.