When the government of Tradeland decides to impose an import quota on foreign cars, three proposals are suggested:

(1) Sell the import licences in an auction. (2)

Distribute the licences randomly in a lottery. (3) Let people wait in line and distribute the licences 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 themselves all cause deadweight losses.)