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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?

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josh

  1. 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.

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    economyst

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