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II. Consider a small country that has a perfectly competitive cotton industry and is an importer of cotton. The country is considering two policy instruments:
II. Consider a small country that has a perfectly competitive cotton industry and is an importer of cotton. The country is considering two policy instruments: (a) specic tariff on cotton, (b) an equivalent quota (the quota rights are auctioned off by the government). Show that although initially both instruments are equivalent from a welfare point of view, if the domestic demand for cotton increases the quota leads to a bigger deadweight loss than the tariff
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