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 SKis the supply curve and
DKis the demand curve. The free trade world price of apples (PW
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 $200 per ton. Suppose Kazakhstan's government restricts imports of apples to 80,000 tons. The world price of apples is not affected by the quota. Analyze the effects of the quota on Kazakhstan's welfare. On the following graph, use the purple line (diamond symbol) to draw the Kazakhstan's supply curve including the quote SK Q. (Hint: Draw this as a straight line even though this curve should be equivalent to the domestic supply curve below the world price. ) Then use the grey line (star symbol) to indicate the new price of apples with a quota of 80,000 apples. 1000 006 800 SK+Q 700 600 Price with Quota 500 A PRICE (Dollars per ton) 400 Change in PS 300 200 DK Quota Rents 100 0 20 40 60 0 100 120 140 160 180 200 DWL QUANTITY (Thousands of tons)On the following graph, use the purple line (diamond symbol) to draw the Kazakhstan's supply curve including the quota SK+Q. (Hint: Draw this as a straight line even though this curve should be equivalent to the domestic supply curve below the world price.) Then use the grey line (star symbol) to indicate the new price of apples with a quota of 80,000 apples. ? 1000 SV 900 800 SK+Q 700 Price with Quota 600 500 A PRICE (Dollars per ton) 400 Change in PS 300 200 DV Quota Rents 100 0 0 20 40 10 80 100 120 140 180 180 200 DWL QUANTITY (Thousands of tons) In the previous graph, use the green area (triangle symbol) to shade the area that represents the effect of the quota on domestic producer surplus (PS) relative to domestic producer surplus under free trade. Use the tan quadrilateral (dash symbols) to shade the area that represents the quota rents. Finally, use the black areas (plus symbol) to indicate the deadweight loss (DWL) resulting from the quota's consumption and protective effects. The equivalent import tariff for Kazakhstan's apple import quota is |$ 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.)
