Suppose Ecuador and Hongkong negotiate a voluntary export agreement in which Hon
ID: 1191040 • Letter: S
Question
Suppose Ecuador and Hongkong negotiate a voluntary export agreement in which Hongkong imposes on its exporters a quota that limits shipments to Ecuador to 40 computers Assume Taiwan does not tske advantage of this situation by exporting computers to Ecuador .Determine the quota redistribuitive ,protective,consumption and revenue effects.Because the export quota is administered by Hongkong its exporters will capture the quota revenue effect.Determine the overall welfare loss to Ecuador as a result of the quota.
c) Again assume that Hongkong imposes an export quota on its producers taht restricts shipments to Ecuador to 40 computers ,but now suppose that Taiwan a nonrestrained exporter , ships an additional 20 computers to Ecuador.Ecuador thus imports 60 computers.Determine overall welfare loss to Ecuador as a result of quota.
d) In general,when increases in nonrestrained supply offset part of the cutback in shipment that occur under an export quota will the overall welfare loss for the importing country be greater or smaller that that which occurs in the absence of non restrained supply.Determine the amount in example of Ecuador.
price Qty dd Qty ss
0 100 -
200 90 0
400 80 10
600 70 20
800 60 30
1000 50 40
1200 40 50
1400 30 60
1600 20 70
1800 10 80
2000 0 90
Explanation / Answer
Determine the quota redistribuitive ,protective,consumption and revenue effects
Revealing Price Effect - The effect of Quota may be diagramatically represented.
Now suppose the government fixes the Imported Quota at Q3Q2.
Protective Effect - The import Quota has protective effect.as it reduces the quantity of import commodity and protects the domestic producer of the commodity from Foreign Competition.
Consumption Effect - When the import quota is fixed, it tends to raise the domestic price of the commodity. Consequestly, it reduces the domestic Consumption .
Revenue Effect -The determination of revenue effect of import quota is slightly difficult to detrmine.
As quotas are administered by means of license, the govt may obtain some revenue by imposing license fee.
+++++++++++++++++
Total Amount - Price * Qty Supplied -
200 * 0 = 0, 400 * 10 = 4000, 600 * 20 = 12000, 800*30 = 24000, 1000*40 = 40000, 1200*50 = 60000,
1400*60 = 84000, 1600*70 = 112000, 1800* 80 = 144000, 2000*90 = 180000
Total - 6,60,000/-
400 * 10 = 4000
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