Question

Suppose that: (1) the United States has a comparative advantage in producing chemicals; (2) Costa Rica has a comparative advantage in producing sugar; and (3) the United States imposes a quota on its imports of Costa Rican sugar. Now suppose that the United States eliminates its import quotas on Costa Rican sugar. Which of the following is most likely to occur for the United States?

A. Consumer surplus for American consumers of sugarproducts will fall.
B. Producer surplus for American sugar producers willrise.
C. Consumer surplus for American consumers of sugarproducts will rise.
D. Tariff revenues for the U.S. government will rise.

Answer 1

Answer: If the United States eliminates its import quotas on Costa Rican sugar, consumer surplus for American consumers of sugar products will rise.

Here, the United States has finally decided to eliminates its import quotas on Costa Rican sugar. This will further allow the producer in Costa Rica to export more quantity of this commodity.