Consider the following hypothetical information pertaining to country's imports, consumption, and...
Question:
Consider the following hypothetical information pertaining to country's imports, consumption, and production of soccer balls following the removal of a quota:
| With Quota | Without Quota | |
|---|---|---|
| World Price for Soccer Balls | $2.00 | $2.00 |
| Domestic Price | $2.50 | $2.00 |
| Domestic Consumption | 100 | 125 |
| Domestic Production | 75 | 50 |
| Imports | 25 | 75 |
a. Graph the effects of the quota removal on domestic consumption and production.
b. Determine the gain in consumer's surplus from the removal of the quota.
c. Determine the loss in producer's surplus from the removal of the quota.
d. Determine how much the country has gained from the quota removal.
The Transfer and Economic Welfare Effects of Quotas
Quotas restrict access to a domestic market and force adjustment to a new domestic equilibrium for the product concerned. This sets in motion welfare transfers and economic welfare loses.
Answer and Explanation: 1
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View this answera. The effects of removing the quota are shown in the graph below. With the quota in place, domestic producers produce the first 50 soccer balls. The...
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Tariffs, Import & Trade Quotas | Overview, Impact & Examples
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Chapter 15 / Lesson 3
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Learn about import quotas and tariffs and see how they work. Compare import vs. domestic products and explore how tariffs and quotas protect the domestic economy.
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