162_Homework3 - ECN 162 International Economic Relations...

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ECN 162: International Economic Relations Homework 3: Monday February 13 in class UC Davis, Professor Swenson 1. Quota Analysis Suppose Brazil imposes a quota on imported cars. Without the quota, Brazilian consumers pay 9,000$ per car. Prior to the quota car consumption is 42,000 cars, of which 2,000 are domestically produced. Post-quota, Brazilian car consumption is 27,000 cars, of which, 5,000 are produced domestically. After the quota is in place, the price of cars rises to 18,000$. a) Draw diagram that represents the situation described. b) Calculate the quota rents that are created by the Brazilian quota. c) How large is the equivalent tariff? 2. Effective Rate of Protection Assume the production of domestic cloth in the U.S. is divided as follows when there is free trade: 30 cents value added, 40 cents for cotton yarn and 30 cents for other fibers. a) Calculate the effective rate of protection assuming the US imposes a 10% tariff on cloth imports, and 10% tariffs on imported cotton yarn and on other fibers.
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