ECON 2306 10 Government and Trade

Quotas aquotaisaspecifiedmaximumamountof

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Unformatted text preview: C+D+E+F PS=0 S TS=A+B+C+D+E+F P (in millions) A Tariff=1 Pd=120 Pt=115 15­100 Pw=100 F =15 C B D E D After Tariff on Trade Welfare: CS=A+B PS=C Govt Revenue=D TS=A+B+C+D Net Welfare loss due to Tariff=E+F 75 200275 500 Q Note: Tariffs are thought to help the importing country but actually the total welfare 11 11 decreased. Quotas A quota is a specified maximum amount of a good that may be imported in a given period of time. Quotas are intended to help the importing country for reasons similar to tariffs. Restricting free trade hurts overall welfare of importing country. 12 12 Quotas Suppose the importing country sets a quota of 200 airplanes The quota is represented by shifting supply curve. The shift in the supply curve sets a new equilibrium where Qs+q=Q...
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