Analysis of Quota

Explanation of quota

Introduction

Looks slightly different what we have before just a kind of demonstrate the way with quotas work so is the same setup domestic supply and domestic demand exactly as they were before. The world price at PW same as P1 before as we like on the international marker at PW. What happens before the quota OX is going to be the amount of domestic production before the quota xq1 is going to be amount of imports so domestic production before the quota and xq1 is imports for the quota. So starting of exactly the same scenario as we have with the tariff only now the w is the quota not the tariff.

What we have here is y2 is the increase in the domestic supply after the quota so once you get to this point here we haven't got the interception at the supply curve, and the demand curve. So it than sort to carry on through the domestic supply curve after across to this point where we cannot import any more foods. So we going to have same price p2 at the end of the exercise with this quota and q2q1 is full in demand after the quota. In addition, when we look at this diagram is cant be on this but is important to point what happens to consumer surplus. So again, I can just draw this big triangle here and then if I shape to the price p2 is exactly the same consumer surplus after the quota so we get the same shrink consumer surplus after the quota compare to the tariff (Kerr & Gaisford, 2008).

Assume be sitting crapulent quota well here is the punch line although it should punch line with quotas that are really very important are not the only problems ...