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Ch 8 # 7 and 10-13

# Ch 8 # 7 and 10-13 - Ch 8#7 a Tariff of t in a small...

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Ch 8 #7 a) Tariff of t in a small country corresponding to the quantity of imports M b) Quota with the same imports M in a small country, with quota licenses distributed to the Home firms and no rent seeking c) Quota of M in a small country with quota licenses auctioned to Home firms d) Quota of M in a small country with the quota given to the exporting firms. e) Quota of M in a small country with quota licenses distributed to rent-seeking Home firms. Order of home welfare: E = D < A = B = C E = D because the value of inefficient activities done to obtain quota license in rent seeking could be as large as the value of the rents received from having the licenses. This would be equal to area “c.” With the quota given to the exporting firms, the quota rents are earned by foreign producers who are able to sell the Home’s price instead of world price. Rents of value “c” are also lost to the foreign firms. Under both allocations, there is a dwl of –(b+d). Net affect on Home welfare is: –(b+c+d) A=B=C because under the distribution of licenses to firms, the home firms earn the rents “c”. When the licenses are instead auctioned off, the rents “c” go to the government but the Home still captures the welfare. Both quotas result in the dwl of –(b+d) which is the same loss of a tariff in a small country. Net affect on Home welfare is –(b+d) #10

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a) Where A = quota rent. This is the rent that goes to the companies at home that hold the
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Ch 8 # 7 and 10-13 - Ch 8#7 a Tariff of t in a small...

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