Discussion:
The table and graph shown below illustrate the demand and supply schedules for television sets in Venezuela, a "small" nation that is unable to affect world prices.
In addition to the answer for each item below, describe in a few sentences how you solved each part of the problem. (This will allow the instructor to assign partial credit in case an answer is incorrect.)
Suppose Venezuela imports TV sets at a price of $150 each. Under free trade, how many sets does Venezuela produce, consume, and import?
Assume that Venezuela imposes a quota that limits imports to 300 TV sets. Determine the quota induced price increase and the resulting decrease in consumer surplus.
Calculate the quota's redistributive effect, consumption effect, protective effect, and revenue effect.
The redistributive effect is
Protective effect is
Revenue effect is
Assuming that Venezuelan import companies organize as buyers and bargain favorably with competitive foreign exporters, what is the overall welfare loss to Venezuela as a result of the quota?