Question

Assume California's supply and demand curve for beef is: Dc = 800 - 10P, Sc = 200 + 30P

a) Derive and graph California's import demand schedule. If Claifornia's agricultural deprtment outlawed purchasing out of state beef to prevent the slaughter of unhappy cows, what would the price of beef be (i.e, what is the price of beef in autarky)?

b) Now consider Nebraska, with the following demand and supply schedules for beef: Dn = 100 -5P, Sn = 40 + 15P. Derive Nebraska's export supply and graph it. If Nebraska's agricultural department outlaws selling beef out of state, what would be the price of beef in the absence of trade?

c) Suppose the interstate sale of beef is permitted between California and Nebraska. What is the world price? What is the volume of trade?

d) What happens if California limits beef imports from Nebraska by adding a 15 percent tax? Calculate the effect of the tariff on (1) the price of beef in each state (2) the quantity of beef supplied and demanded in each state and (3) the volume of trade. Calculate the impact on the welfare of California consumers, producers, government revenue, and total welfare.

Answer 1