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Determine the quota-induced price increase and decrease

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Reference no: EM13235567

Non tariff trade barriers

The table below are the demand and supply schedules for television sets in Venezuela, a "small" nation that is unable to affect world prices.

Price per TV set Quantity Demanded Quantity Supplied
$100 900 0
200 700 200
300 500 400
400 300 600
500 100 800

a. Suppose Venezuela imports TV sets at a price of $150 each. Under free trade, how many sets does Venezuela produce, consume, and import? Determine Venezuela'a consumer surplus and producer surplus.

b. Assume that Venezuela imposes a quota that limits imports to 300 TV sets. Determine the quota-induced price increase and the resulting decrease in consumer surplus. Calculate the quota's redistributive effect, consumption effect, protective effect, and revenue effect. Assuming that Venezuelan import companies organize as buyers and bargain favorably with competitive foreign exporters, what is the overall welfare loss to Venezuela as a result of the quota? Suppose that foreign exporters organize as a monopoly seller. What is the overall welfare loss to Venezuela as a result of the quota?

c. Consider the attached graph. What is the cost of the production subsidy to the Venezuelan government?

d. Consider the attached graph. How much is the increase in Venezuelan producer surplus under the production subsidy?

e. Consider the attached graph. How much overall welfare loss for Venezuela does the production subsidy result in?

Reference no: EM13235567

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