section15_1 - Department of Economics University of...

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Department of Economics University of California, Berkeley ECON 100A Spring 2010 - Section 15 GSI: Antonio Rosato Welfare Analysis: Exercise 1 In recent years, the world price of sugar has been as low as 10 cents per pound. The US government wants to protect its domestic producers, so it is analyzing two options: implementing a quota or implementing a tariff. You are hired by the US government to analyze both policies. The information they give you is the following: - the estimated elasticity of demand is -0.2 - the estimated elasticity of domestic supply is 1 - the US production of sugar in 2007 was 5 billion pounds - the US consumption of sugar in 2007 was 25 billion pounds The estimated linear demand and domestic supply in billion of pounds are given by the following equations: Qd = 30 - 0 . 5 * P and Qs = 0 . 5 * P a) What is the market equilibrium is there is no international trade? b) What is the quantity produced by domestic producers and the quantity imported if there is international trade? c)
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section15_1 - Department of Economics University of...

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