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Refer to the graphs in exercise 2. Suppose that instead of a tariff, Home (Home is a small country) applies an import quota limiting the

Refer to the graphs in exercise 2. Suppose that instead of a tariff, Home (Home is a small country) applies an import quota limiting the amount Foreign can sell to 2 units.

a)Determine the net welfare effect of import quota on the Home economy if the quota licenses are allocated to local producers.

b)Calculate the net effect of the import quota on Home welfare if the quota rents are earned by foreign exporters.

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