Reference no: EM131073902
In 2013, U.S. sugar imports are restricted by way of an import quota. The domestic sugar price is kept above the world market price of sugar by way of a federal domestic price guarantee. A special feature of the sugar import quota is that the rights to sell the sugar in the united states are allocated to the governments of foreign nations, who then allocate these rights to their own residents, just like a voluntary export restraint.
The quantity demanded was estimated to be 5.7 million tons, the quantity supplied was 2.7 million tons, and the price was $426 per ton when the quota was in effect. Also estimated (with free trade) was the world market price of $275 per ton of sugar, the quantity demanded would be 6.9 million tons, and the quantity supplied would be about 1.8 million tons of sugar per year.
In 2013, the size of the U.S. population was about 316 million. In the same year, the sugar industry employed about 6,500 workers. Assume the U.S. is a "small nation" when it comes to sugar imports.
a. what is the total dollar amount the U.S. loses or gains from imposing he imort quota? How much of this amount is earned by foreigners?
b. How much did the sugar quota costor benefit the average U.S. consumer (assuming each resident was a sugar consumer)?
c. What was the implicit subsidy per worker, based on the impact of the import quota on sugar producers?
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