Question

7. A small country imports sugar. With free trade at the world price of $0.10 per pound, the country’s national market is:

Domestic production Domestic consumption Imports 120 million pounds per year 420 million pounds per year 300 million pounds per year

The country’s government now decides to impose a quota that limits sugar imports to 240 million pounds per year. With the import quota in effect, the domestic price rises to $0.12 per pound, and domestic production increases to 160 million pounds per year. The government auctions the rights to import the 240 million pounds.

1. Calculate how much domestic producers gain or lose from the quota.

2. Calculate how much domestic consumers gain or lose from the quota.

3. Calculate how much the government receives in payment when it auctions the quota rights to import.

4. Calculate the net national gain or loss from the quota. Explain the economic reason(s) for this net gain or loss.

Please No bad handwriting!! I need to understand them. Thanks :)

Answer 1

Initial situation DATE PAGE NO. Domestic supply buto Wadd supply Domestic demand → Sugar bowiedy 120 420 Domestic pusdiction Imbats re 300 Dorceste conoscouption Scanned with CamScanner

PAGE NO. || After Quota imposition - Domestic supply - Domestic supply after quota) 9-12 16 fotot — world supply Domestic demand Sugas lllion baudy) . 0 120 + 160 300 420 Quota (Policy) with the imposition of quota of 240 mil pounds, there would be p in pice to 0.12 & and domestic supply increases to 160 while domestic consumption remains unchanged at 420. • Now, if gout auctions the right to improct 240 mil. pound by licencing at auctioning, then would be increase in gout revenue by aila (abed) Scanned with TIP CamScanner

* Domestic bed duces gain by avea (fbde) = children (0.12-0:10 160 t I fou (0:2)x240 c i 02 x 160 + 0.1x240 32 + 24 = 56 $ ' * Domestic consumers losse by alla (ef bg) 300 x 0.26+ 1 x(420-300) (0:2) 60 + 1x 180 x R To 60 #12 - 072$ Lin Gout revenue ou accout of auction i au (etc Cabbc) = 0:2 x 240 = 48$ & Net national galy I loss = Consupun suplus change + change in produce suples + change in gout I neveme T u ge nu 56-12 +48 = 32$ (ruet gain) Scanned with CamScanner

& Economic reason & Since, import quota has been monetized by the govlenment by issuing licence of auction which has reduced the welfare loss ( which usually ocaus when import quota is imposed) The welfau to produce & gout over power the loss in consumer suplul and theufou, we don't have not welfare loss rather there has been an increase in net benefit to the society from impot quota. Please like ob of you liked the explanation i n de biens Scanned with CamScanner