Principles of Economics- Mankiw (5th) 196

Principles of Economics- Mankiw (5th) 196 - 202 PA R T T H...

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202 PART THREE SUPPLY AND DEMAND II: MARKETS AND WELFARE a. Assume the U.S. is an importer of televisions and there are no trade restrictions. How does the technological advance affect the welfare of U.S. consumers and U.S. producers? What happens to total surplus in the United States? b. Now suppose the United States has a quota on television imports. How does the Japanese technological advance affect the welfare of U.S. consumers, U.S. producers, and the holders of import licenses? 10. When the government of Tradeland decides to impose an import quota on foreign cars, three proposals are suggested: (1) Sell the import licenses in an auction. (2) Distribute the licenses randomly in a lottery. (3) Let people wait in line and distribute the licenses on a first- come, first-served basis. Compare the effects of these policies. Which policy do you think has the largest deadweight losses? Which policy has the smallest deadweight losses? Why? (Hint: The government’s other ways of raising tax revenue all cause deadweight
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