Lecture 6

Lecture 6 - ECN 211 Macroeconomic Principles L29 Quota...

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ECN 211 Macroeconomic Principles L29 Quota
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Tools of Trade Policy Quantity Quotas (license) – Going to assume license is given to foreign firm – Only allow a certain number of foreign goods to be purchased domestically – An effective quota keeps price (domestic) above the world level. – Results in consumer surplus being transferred to the foreign producers of the good in question as well as domestic producers .
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Protectionism: Introducing a Quota $ P NT P W Q 1 Q 2 Q 3 A B C D E Q 4 Q 5 S dom D dom Wheat P 1 F G H I S+quota
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Outcome with a quota • Quota: Suppose a Quota of (Q 5 -Q 4 ) is introduced. – Shifts the supply curve from S dom to S+quota – Price in the domestic market is now P 1 – Q 5 is the domestic consumption – Q 4 is domestically supplied – (Q 5 -Q 4 ) is the quota that is imported.
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Welfare with a Quota Consumer surplus falls from AEP w to AGP 1 Domestic Producer surplus increases from CP w D to P 1 FC Tax revenue is zero Welfare loss of DFGE
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This note was uploaded on 03/03/2010 for the course ECN 211 taught by Professor Kingston during the Spring '08 term at ASU.

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Lecture 6 - ECN 211 Macroeconomic Principles L29 Quota...

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