Answer to Question #42169 in Microeconomics for babu
South Korea is one of the major beef importing countries. With no international trade, Korea’s equilibrium price for beef was $10 million per kilo tonne and equilibrium quantity was 30 kilo tonne. If Korea opens its market to international trade with no tariff, domestic supply would be 10 kilo tonne and domestic demand would be 50 kilo tonne at the world price of $5 million per kilo tonne. However, Korea currently imposes 40 per cent tariff rate on all imported beef. With 40 per cent tariff, Korea’s domestic supply and domestic demand are 20 kilo tonne and 40 kilo tonne respectively. Assume that intercept of supply curve is $3 million and demand curve is $15 million per kilo tonne.
Suppose that Korea does not impose tariff any more but instead imposes an import quota of 20 kilo tonne. Draw a graph to identify the areas of gains and losses from the import quota, importers’ profit, and the deadweight loss. Provide your explanation.