Final answer:
A domestic consumer would expect to pay $60 for an imported product if the government establishes an import quota that creates a scarcity premium of $10, adding to the original free trade price of $50.
Step-by-step explanation:
When a government establishes an import quota, this limits the amount of a product that can be imported, typically leading to an increase in the price of that product within the domestic market. In the scenario provided, the free trade price of the product is $50. If the government sets an import quota that generates a scarcity premium of $10, this means that the domestic price of the product would rise by that amount. The scarcity premium reflects the additional amount consumers are willing to pay due to the limited supply caused by the quota.
Therefore, a domestic consumer would expect to pay $60 for the product, which includes the original free trade price plus the scarcity premium imposed by the quota. This is similar to the impact of tariffs, where the cost of the tariff is often passed on to consumers in the form of higher prices, as exemplified with the case of sugar between the United States and Brazil. Generally, trade barriers such as tariffs and quotas result in higher domestic prices and alter the equilibrium price and quantity in the market.
A domestic consumer would expect to pay $60 for the product as a result of the import quota and the resulting scarcity premium.