Figure 9-7 -Refer to Figure 9-7. Fenwick Currently Both Produces and Imports

question 262

Essay

Figure 9-7
-Refer to Figure 9-7. Fenwick currently both produces and imports pistachios. The government of Fenwick decides to restrict international trade in pistachios by imposing a quota that allows imports of only 5 million pounds each year. Figure 9-7 shows the estimated demand and supply curves for pistachios in Fenwick and the results of imposing the quota. Answer questions a-j using the figure.
a. If there is no quota what is the domestic price of pistachios and what is the quantity of pistachios demanded by consumers?
b. If there is no quota how many pounds of pistachios would domestic producers supply and what quantity would be imported?
c. If there is no quota what is the dollar value of consumer surplus?
d. If there is no quota what is the dollar value of producer surplus received by producers in Fenwick?
e. If there is no quota what is the revenue received by foreign producers who supply pistachios to Fenwick?
f. With a quota in place what is the price that consumers of Fenwick must now pay and what is the quantity demanded?
g. With a quota in place what is the dollar value of consumer surplus? Are consumers better off?
h. With a quota in place what is the dollar value of producer surplus received by producers in Fenwick? Are domestic producers better off?
i. Calculate the revenue to foreign producers who are granted permission to sell in Fenwick after the imposition of the quota.
j. Calculate the deadweight loss as a result of the quota.

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Definitions:

Department of Justice

A U.S. government's federal department tasked with law enforcement and the management of justice.

Mergers

The process by which two or more companies combine operations, often to increase competitiveness or to expand market share.

Glass-Steagall Act

A law enacted in 1933 to separate commercial banking from investment banking, aimed at reducing conflicts of interest and systemic risks.

Monopolies

Market structures characterized by a single seller dominating a particular market, possessing significant market power over the price and supply of a product or service.