Question

Import Demand

a) Draw a domestic market for sugar with a supply of P = .2+.1QS (note: price is per pound

and quantity is measured in thousands of tons) and a demand of P = 5 − .2QD

b) If the world price of sugar is $1.20, how much money do consumers spend on imported

sugar

c) If a tariff of $0.20/pound is imposed, how many pounds of sugar are imported?

d) Draw the import demand curve for sugar in the domestic market. Be sure to label your axes and intercepts.

Answer 1

a) Demand = 5 - 0.2Q

Supply = 0.2 + 0.1Q

At equilibrium, demand = supply

5 - 0.2Q = 0.2 + 0.1Q

Q = 16

At this quantity, P = 1.4

b) World price = $1.2

At this world price, there is quantity demand of 19 units while quantity supplied of 10 units. Thus, there is import of 19 - 10 = 9 units

c) If there is tariff of $0.2 which makes world price + tariff= $1.4. At this price, there is quantity demanded of 18 units while quantity supplied of 12 units which means there is imports of 18 - 12 = 6 units

d) We can see from the below diagram that at the price of $1.2, there is import of 9 units while at the price of $1.2, there is import of 6 units which creates the Imports demand (MD) curve.