## Quota Impact On National Welfare

The following homework must be done with graphs drawn neatly to show your work. Do not submit online. Bring a hard copy to class on Tuesday. Show all your computations.

ECON 370- Home Work

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Suppose Colombia’s domestic demand curve for TV sets is:

P=550-(1/2) Q

Domestic Supply is:

P= 100 + (1/2) Q

1. Find the domestic equilibrium price and quantity of TV sets by equating demand to supply.  Draw the graph and label price and Quantity

Now suppose, the World Market price of TV sets is \$150 and Colombia starts importing TV sets at that price.

1. Compute  Colombia’s demand at P= \$150?
2. Compute domestic Supply at that P=\$150?
3. How much will be imported?
4. Show all points on your graph
5. Compute the Consumer Surplus at P = \$150 in \$ value.
6. Compute Producer surplus at that price.

Assume now that Colombia imposes Quota on TV imports and as a result, price goes up to \$250.

7. What is the Quota import limit? (find by computing demand and supply at P =\$250

8. If foreign exporters organize themselves as a monopoly seller and captures the Quota rent, what will be the national welfare loss to Colombia?

9. If on the other hand, Colombian government sells import licenses at a given price and acquires the quota rent, what will be the national loss to Colombia?

10. If there are 10 licenses to be sold with each permitting 30 units of import, what should be the price of each license?