Question

Quota in a small country Suppose a small country imposes a quota that reduces imports of a good by 50 units and raises the price by $5. Assuming linear supply and demand curves, the net welfare loss is_________.

A. $250.
B. $125.
C. $0.
D. -$125.

Answer 1

$125 ( B )

Step-by-step explanation:

The net welfare loss assuming linear supply and demand curves would be calculated as

= (reduction in imports * increase in prices) / 2

= (50 * $5) / 2

= $250 / 2 = $125

The import quotas are trade restrictions that tends to limit the number or percentage of goods and service that can be imported into a country by importers. this trade restrictions are usually made in order to encourage local manufacturers producing similar goods that are been imported

Answer 2

The net welfare loss is $250

Step-by-step explanation:

The Quota of a country imposes the importation of goods for business men or traders. if at any selling price from the example given that, if the system reduces imports by 50 units, therefore, lets assume linear supply and demand curves as follows,

quota of imports of good multiply by the price been raised 5$= 250$ is the net welfare loss.