Asked by josh
Suppose the domestic demand for coffee is given by the equation Q=100-P, domestic supply by the equation Q=P. THe world price for coffee is $20 per unit. The government decides to impose an import quota limiting imports to 10 units. How much dead weight loss will this generate?
Answers
Answered by
economyst
Start by drawing supply and demand curves and solve for an equilibrium price and quantity. Now draw in the quota. Dead weight loss will be the triangle area which is:
a) to the right of the quota
b) under demand, and
c) above supply
you may need to use some basic algebra/geometry to numerically solve.
a) to the right of the quota
b) under demand, and
c) above supply
you may need to use some basic algebra/geometry to numerically solve.
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