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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  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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