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Consider a world with two countries-USA and Foreign and a competitive market of sugar in both counties.

1.      Consider a world with two countries-USA and Foreign and a competitive market of sugar in both counties. Foreign is more efficient in the production of sugar and the autarky price of the sugar is lower in Foreign. Describe graphically the equilibrium of sugar when USA and Foreign begin trading. What would be the effect on the sugar price in USA and on the welfare of US if US imposes a (per unit) tariff on sugar import? Argue using a graph taking into consideration that US is a large sugar importing country.

2.      Explain the cost of “rent seeking” associated with import quota and give an example.

3.      Explain two main consequence on Japanese export of cars to USA of the Voluntary Export Restraint of Japanese export of cars to USA in 1980s. Who (among Japan, US consumers, US auto industry) was the main loser from the Voluntary Export Restraint?

4.      Consider a monopolistic competition model of differential good but with symmetric firms and(internal) economics of scale.

a.      When a market expands (consider a case of Canada integrating with USA), what would be its impact on prices and number of firms in each country, number of firms in both countries together?

b.      What would be the impact of the integration on the welfare of a typical resident of Canada? Detail the two main sources of the welfare changes.

c.       Now, consider the case of asymmetric firms. What additional effect of integration can you expect? Explain their possible welfare impact.

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