Answered: The import quantity under free trade is…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter9: Application: International Trade

Section: Chapter Questions

Problem 6PA

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The import quantity under free trade is 500 crates of bananas and the price is $0.50/lb. The government them imposes an import quota of 400 crates and the new price of bananas is $0.55 within the country but unchanged in the rest of the world.

Because of an import quota, the producers enjoy a gain of 30, the consumers experience a loss of 120. What is the net welfare effect for the economy if the Government gives away the permits for free____, and if the govt auctions them____?

a. Loss of 90, Loss of 70

b. More information is needed

c. Loss of 90, Loss of 90

d. Loss of 70, Loss of 90

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