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Suppose Ecuador and Hongkong negotiate a voluntary export agreement in which Hongkong imposes on its exporters a quota that limits shipments to Ecuador to 40 computers Assume Taiwan does not tske advantage of this situation by exporting computers to Ecuador. Determine the quota redistribuitive, protective, consumption and revenue effects. Because the export quota is administered by Hongkong its exporters will capture the quota revenue effect. Determine the overall welfare loss to Ecuador as a result of the quota.
c) Again assume that Hongkong imposes an export quota on its producers taht restricts shipments to Ecuador to 40 computers, but now suppose that Taiwan a non restrained exporter , ships an additional 20 computers to Ecuador. Ecuador thus imports 60 computers. Determine overall welfare loss to Ecuador as a result of quota.
d) In general, when increases in non restrained supply offset part of the cutback in shipment that occur under an export quota will the overall welfare loss for the importing country be greater or smaller that that which occurs in the absence of non restrained supply. Determine the amount in example of Ecuador.
price Qty dd Qty ss
0 100 -
200 90 0
400 80 10
600 70 20
800 60 30
1000 50 40
1200 40 50
1400 30 60
1600 20 70
1800 10 80
2000 0 90
The function for the net exports is NX=200-100e, where e, is the exchange rate, and the exchange rate is initially 1.0.
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