Consider the market for ethanol in the United States depicted in the figure to t

Question

Consider the market for ethanol in the United States depicted in the figure to the right. Assume the world price of ethanol is

$0.800.80

per gallon, and at that price the United States can buy as much ethanol as it wants without causing the world price to rise.

Now suppose a

quota of 1.0 billion gallonsquota of 1.0 billion gallons

is imposed by the government.

What is the dollar amount of the change in consumer surplus as a result of the

quotaquota?

$nothing

billion.(Enter a numeric response using a real number rounded to two decimal places using the correct sign.)

Consider the market for ethanol in the United States depicted in the figure to the right. Assume the world price of ethanol is $0.80 per gallon, and at that price the United States can buy as much ethanol as it wants without causing the world price to rise Supply 2.2 Now suppose a quota of 1.0 billion gallons is imposed by the government. What is the dollar amount of the change in consumer surplus as a result of the quota? $bil. (Enter a numeric response using a real number rounded to two decimal places using the correct sign.) 2 S 1.2 0 0.4 Demand 0 1 23 4 5 6 7 8 Quantity of ethanol (billion gallons per year)

Explanation / Answer

After the quota of 1 billion is imposed,

the price of ethanol in US= $ 1.30

consumption of ethanol at $1.30 = 5

consumption of ethanol at $0.8 = 6

Change in consumer surplus = -(1.3-0.8)*5 -0.5*(1.3-0.8)*(6-5) = -2.75

Chnage in consumer surplus = -2.75 billion

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