HELP ME UNDERSTAND DEADWEIGHT LOSS PLEASE!!!! (Jessica Waters's Blog)

College-Cram.com:: Jessica Waters:: HELP ME UNDERSTAND DEADWEIGHT LOSS PLEASE!!!! (Jessica Waters's Blog)

May 12, 2008

The market for the US is; d=100-20p s=20+20p

The market for the rest of the world; d=180-20p s=60+20p

Suppose the us government imposes a quota of 22 units on its imports. Calculate the magnitude of the deadweight loss resulting from the quota.

PLEASE help me solve this I would really like to know how befor I have to do an exam.

Thank you so much!

Posted by Jessica Waters

The first step is to calculate the equilibrium price and quantities without regard to the quota, then measure the impact of the quota. The total supply (US and ROW) has to equal the total demand (US and ROW). I found equilibrium price to be 2.5 for your example. In this case, the US is producing 20 more than it is consuming - it is exporting 20. An import quota has no impact on exports. There is no deadweight loss in this case.

Jack Robinson on Monday, 12 May 2008, 08:05 CDT # |
Jessica, there's more about deadweight loss in the Economics blog -- this might help you prepare for your test.

Rudy on Monday, 12 May 2008, 08:17 CDT # |