3. Import quotas

Kazakhstan is an apple producer, as well as an importer of apples. Suppose the following graph shows Kazakhstan's domestic market for apples, where SK??is the supply curve and DK??is the demand curve. The free trade world price of apples (PW??) is $200 per ton. Suppose Kazakhstan's government restricts imports of apples to 120,000 tons. The world price of apples is not affected by the quota. Analyze the effects of the quota on Kazakhstan's welfare.

On the following graph, use the purple line (diamond symbol) to draw the Kazakhstan's supply curve including the quota SK+Q?K+Q. (Hint: Draw this as a straight line even though this curve should be equivalent to the domestic supply curve below the world price.) Then use the grey line (star symbol) to indicate the new price of apples with a quota of 120,000 apples.

SK+QPrice with QuotaChange in PSQuota RentsDWL030609012015018021024027030010009008007006005004003002001000PRICE (Dollars per ton)QUANTITY (Thousands of tons)DKSKPW

In the previous graph, use the green area (triangle symbol) to shade the area that represents the effect of the quota on domestic producer surplus (PS) relative to domestic producer surplus under free trade. Use the tan quadrilateral (dash symbols) to shade the area that represents the quota rents. Finally, use the black areas (plus symbol) to indicate the deadweight loss (DWL) resulting from the quota's consumption and protective effects.

The equivalent import tariff for Kazakhstan's apple import quota is

per ton of apples.

If Kazakhstan's government auctions off the quota licenses in a well-organized, competitive auction, Kazakhstan experiences a deadweight loss of

. (Hint: Select a shaded region to see its area. Be sure to adjust for the units on the quantity axis.)

Kazakhstan is an apple producer, as well as an importer of apples. Suppose the following graph shows Kazakhstan's domestic market for apples, where SK is the supply curve and DK is the demand curve. The free trade world price of apples (Pw) is $200 per ton. Suppose Kazakhstan's government restricts imports of apples to 120,000 tons. The world price of apples is not affected by the quota. Analyze the effects of the quota on Kazakhstan's welfare. On the following graph, use the purple line (diamond symbol) to draw the Kazakhstan's supply curve including the quota SK+Q. (Hint: Draw this as a straight line even though this curve should be equivalent to the domestic supply curve below the world price.) Then use the grey line (star symbol) to indicate the new price of apples with a quota of 120,000 apples. 1000 SK BOO 700 Price with Quota 600 A PRICE ( Dollars per ton) 500 400 Change in PS 300 200 DK Quota Rents 100 DWL BO 90 120 150 180 210 240 270 300 QUANTITY (Thousands of tons) In the previous graph, use the green area (triangle symbol) to shade the area that represents the effect of the quota on domestic producer surplus (PS) relative to domestic producer surplus under free trade. Use the tan quadrilateral (dash symbols) to shade the area that represents the quota rents. Finally, use the black areas (plus symbol) to indicate the deadweight loss (DWL) resulting from the quota's consumption and protective effects. The equivalent import tariff for akhstan's apple import quota is $ per ton of apples. a well-organized, competitive auction, Kazakhstan experiences a deadweight loss of If Kazakhstan's government auctions to adjust for the units on the quantity axis.)