Reference no: EM131112445
Imagine that the United States Congress is considering a law that sets a binding quota on the permissible amount of foreign-produced sugar that can be imported into the United States. The quota is expected to increase U.S. sugar prices, which will have two effects: increase the profits for U.S. sugar producers, and decrease the consumer surplus for U.S. residents. Specifically, the quota is expected to increase sugar profits by $10 million each for the ten largest U.S. sugar producers, for a total of $100 million. Additionally, the increased sugar prices will result in an average decrease in consumer surplus of $1 per U.S. resident. Since there are approximately 300 million people living in the U.S., total consumer surplus will decrease by approximately $300 million. Select all of the following statements that accurately describe whether the legislation passes or not.
1. Since the winners from the sugar quota (U.S. sugar producers) are readily identifiable, and the losers are disparate (anonymous) and difficult to identify, the legislation is less likely to pass.
2. Since the total gains to U.S. sugar producers are smaller than the total losses to U.S. consumers, the legislation will not pass.
3. Given that U.S. sugar producers are a well organized group relative to the U.S. population as a whole, the legislation is more likely to pass.
4. Since the winners from the foreign import quota (U.S. sugar producers) are readily identifiable, and the losers are disparate (anonymous) and difficult to identify, the legislation is more likely to pass.
5. Since U.S. sugar producers are a small group relative to the U.S. population, this legislation is more likely to pass.
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