INTL 2200 Lecture 8: intl2200-class-8-Ch9
25 Mar 2016
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Fig 1. 1 and 1. 2 demonstrate and explain quotas. Quotas set the quantity, then the price. Tariffs set the price, then the quantity. In (fig 1. 2), home country is producing at qs2 now instead of at qs1. Issue import licenses, enough to hit the quota. Like if the quota is 100, 000 cars, you issue 100, 000 import licenses, one for each car. One way is first come first serve. If they are given out free, the height of the rectangle is the value of the quota rent. Like the people who have the licenses would make the quota rent since they"re charging pdomestic, but only making it for pw (in fig 1. 2) The most you"re willing to pay is the height of the rectangle, the quota rent. Part of quota rent goes to the guv and another part goes to the license holders, depending on the price that"s charged.
