Price of Computer Quantity Demand Quantitiy Supplied
0 100 n/a
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
A. Assume that Hong Kong and Taiwan can supply computers to Ecador at a per-unit price of $300 and $500, respectively. With free trade, how many coputers does Ecuador import? From which nation does it import?
B. Suppose Ecador and Hong Kong negotiate a voluntary export agreemetn in which Hong Kong imposes on its exporters a quota that limits shipments to Ecuador to 40 computers. Assume Taiwan does not take advantage of the siuation by exporting computers to Ecuador. Determine the quota-induced price increase and the reduction in the consumer surplus for Ecuador. Determine the quota's redistributive, protective, consumption, and revenue effect. Because the export quota is administered by Hong Kong, its exporters will capture the quota's revenue effect. Determine the overall welfare loss to Ecuador as a result of the quota.
C. Again, assume that Hong Kong imposes an export quota on its producers that restricts shipment 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 the overall welfare loss to Ecuador as a result of the quota.
D. In general, when increases in nonrestrained supply offset part of the cutback in shipments that cocur under an export quota, will the overall welfare loss for the importing country be greater or smaller than that which occurs in the absence of nonrestrained supply? Determine the amount in the example of Ecuador.