1.10. When the government of Tradeland decides to impose an import quota on foreign cars, three proposals are suggested: (1) Sell the import licenses in an auction.

(2) Distribute the licenses randomly in a lottery. (3) Let people wait in line and distribute the licenses on a firstcome, first-served basis. Compare the effects of these policies. Which policy do you think has the largest deadweight losses? Which policy has the smallest deadweight losses? Why? (Hint: The government’s other ways of raising tax revenue all cause deadweight losses themselves.)