You are provided with the following information about the Canadian turkey market: 1. The world price of turkey is $5. 2. The Canadian turkey market is currently (before the new trade agreement) protected by a tariff rate quota (TRQ) of the following format: a) the in-quota tariff is $1 per unit b) the import quota volume is 100 units c) the over-quota tariff is $10 per unit. 3. An excess demand (ED) (for imports) function for turkey has been estimated as ? = 28 − 0.14?. a) Draw the diagram for imports in this market, and solve for the Canadian turkey price and the volume of imports under the existing TRQ. Label all relevant functions, axes, etc. • Hint: first, determine if the quota portion of the TRQ is binding. Do this by solving for Q (using the ED function) at the in-quota price (?? + ?) and at the over-quota price (?? + ?). Can ED intersect the effective supply function at those quantities? If not, then determine Canadian P by plugging import quota volume into the ED function.
The Government of Canada recently signed new preferential trade agreement, and has agreed to pay
subsidies to turkey farmers to compensate for increased competition they may face from imports. You
are employed as an analyst by AAFC. In order to determine the dollar value of compensation, AAFC
requires an estimate of how the Canadian price of turkeys and the quantity of imported turkeys will
change as a result of the new trade agreement.
You are provided with the following information about the Canadian turkey market:
1. The world price of turkey is $5.
2. The Canadian turkey market is currently (before the new trade agreement) protected by a tariff
rate quota (TRQ) of the following format:
a) the in-quota tariff is $1 per unit
b) the import quota volume is 100 units
c) the over-quota tariff is $10 per unit.
3. An excess demand (ED) (for imports) function for turkey has been estimated as
? = 28 − 0.14?.
a) Draw the diagram for imports in this market, and solve for the Canadian turkey price and the volume
of imports under the existing TRQ. Label all relevant functions, axes, etc.
• Hint: first, determine if the quota portion of the TRQ is binding. Do this by solving for Q (using
the ED function) at the in-quota price (?? + ?) and at the over-quota price (?? + ?). Can ED
intersect the effective supply function at those quantities? If not, then determine Canadian P by
plugging import quota volume into the ED function.
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