Alagir and Ertil are small countries that protect their economic growth from rapidly advancing globalization by limiting the import of televisions to 20 million. To this end, each country imposes a different type of trade barrier when the world price (Pw) is $2,000. In Alagir, the government decides to impose a tariff of $3,000 per television; in Ertil, the government implements a quota of 20 million televisions. Assume that Alagir and Ertil have identical domestic demand (Do) and supply (S) curves for televisions as shown on the following graph. Under these conditions, the price of televisions is $5,000 per television in each country. RICE (Dollars per television) 10000 9000 8000 7000 6000 5000 4000 3000 Do D. ♥ ☆ ☆ S (?)
Alagir and Ertil are small countries that protect their economic growth from rapidly advancing globalization by limiting the import of televisions to 20 million. To this end, each country imposes a different type of trade barrier when the world price (Pw) is $2,000. In Alagir, the government decides to impose a tariff of $3,000 per television; in Ertil, the government implements a quota of 20 million televisions. Assume that Alagir and Ertil have identical domestic demand (Do) and supply (S) curves for televisions as shown on the following graph. Under these conditions, the price of televisions is $5,000 per television in each country. RICE (Dollars per television) 10000 9000 8000 7000 6000 5000 4000 3000 Do D. ♥ ☆ ☆ S (?)
Chapter21: International Trade And Finance
Section: Chapter Questions
Problem 10SQ
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Transcribed Image Text:4. A graphical comparison of tariffs and quotas
Alagir and Ertil are small countries that protect their economic growth from rapidly advancing globalization by limiting the import of televisions to 20
million. To this end, each country imposes a different type of trade barrier when the world price (Pw) is $2,000. In Alagir, the government decides to
impose a tariff of $3,000 per television; in Ertil, the government implements a quota of 20 million televisions.
Assume that Alagir and Ertil have identical domestic demand (Do) and supply (S) curves for televisions as shown on the following graph. Under these
conditions, the price of televisions is $5,000 per television in each country.
PRICE (Dollars per television)
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
0
P
D.
0
10
D
20 30 40 50
60 70
QUANTITY (Millions of televisions)
80
90
S
100
Transcribed Image Text:Suppose that in both countries, demand for televisions rises from Do to D₁.
Assuming Alagir keeps the tariff at $3,000 per television, complete the first row of the following table by calculating each of the values given this
increase in demand. Assuming Ertil maintains a quota of 20 million televisions, complete the second row of the table by calculating each of the values
given this increase in demand.
Country
Alagir (tariff = $3,000)
Ertil (quota = 20 million televisions)
True
Price
(Dollars)
False
True or False: The increase in demand hurts domestic producers but helps domestic consumers in Ertil.
Quantity Demanded at New Price
(Millions of televisions)
Which of the following explain why a quota is a
Imports
(Millions of televisions)
restrictive trade barrier than an equivalent tariff. Check all that apply.
A quota ensures the domestic industry a ceiling on imports.
A foreign producer may offset the quota by the price reductions.
By foredosing the market mechanism, a quota suppresses competition.
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