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1. (16 points) Import Quota

Suppose that nation A is a small nation with demand and supply of commodity X given by Qd = 120 - 20P and Qs = 20P, respectively. Assume that the free trade price of commodity X is $1, and nation A imposes an import quota of 20X. Draw a figure similar to Figure 9.1 in Salvatore and compute the following:

1. (2 points) nation A's price, production, consumption and imports of commodity X under free trade
2. (4 points) nation A's price, production, consumption and imports of commodity X under the import quota
3. (2 points) consumption, production and trade effects of the import quota
4. (4 points) dollar value of the consumer surplus and producer surplus before and after the imposition of the import quota
5. (2 points) dollar value of the deadweight loss of the import quota, assuming that import licenses are distributed to selected domestic importers free of charge
6. (2 points) the maximum price government can charge for the import licenses, and the subsequent dollar value of the deadweight loss of the import quota