a. What are the present equilibrium price and domestic production?
b. Suppose that Australia now opens to free trade and the world price of softwood lumber is $450 per thousand board feet. How much lumber will Australia produce domestically, and how much will it import?
c. Assume that the Australian government, under pressure from the Australian lumber industry, decides to impose an import quota of 120 thousand board feet. What will be the new price, and how much will the Australian industry produce?
d. Now, suppose that the Australian government decides to replace the quota with a tariff. If it wishes to maintain domestic production at the same level as with a quota, what should be the amount of the tariff, and how much revenue will government receive?
Price per Quantity QuantityThou sand Demanded SuppliedBoard Feet Domestically Domestically