The supply and demand for wheat in the small country Tinyland are: Qs = P and Qd = 400 – P, respectively. The world pric

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The supply and demand for wheat in the small country Tinyland
are: Qs = P and Qd = 400 – P, respectively.
The world price of wheat is Pw = 100.
a) Suppose the government imposes an import quota on wheat
Q = 100
i. Find the price of wheat in Tinyland.
ii. Find the tariff per unit that generates the same volume of
trade as the quota.
iii. Next suppose that instead of a quota or a tariff, the
government levies a specific (per unit) consumption tax on wheat.
Find the price of wheat in Tinyland when the tax is equal to the
tariff you found in part ii and the quantity of wheat imported.
NB: In contrast to a tariff, which is levied on all units
produced abroad (imported), a consumption tax is levied on all
units sold in the domestic market regardless of where they were
produced, = 100.
b) Which of these three policies, i.e., quota, tariff, and
consumption tax, do consumers and producers prefer? Give precise
answers by evaluating the welfare of each group. Assuming that the
government allocates quota tickets to its political supporters who
are citizens of Tinyland, which of the three policies would you
recommend from the perspective of the country as a whole. Draw
appropriate graphs to illustrate all of your results.