Rank the welfare of the entire country with the following protection policies under imperfect competition and...

Rank the welfare of the entire country with the following protection policies under imperfect competition and explain your reasoning.
(a) Tariff t1 per unit of imports to a small country, and the equilibrium imported quantity is M1.
(b) A quota of M1 units of imported quantity in a small country. The quota license is auctioned to the domestic monopoly.
(c) A quota of M1 units of imported quantity in a small country. The quota license is transferred to the domestic monopoly.

Expert Solution

Rank of the countries under the following protection policies:

1 a

2-b

3-c

First of all we need to understand that tariff is more transparent than the quotas and that's why it is preferred in WTO agreements then quota.

tariff is the tax that is imposed by the government of importing country to reduce the amount of import.

On the other hand quota is a quantitative restrictions under which the government decided a maximum quantity which a country or industry can import from other Nations.

So (a) would result in maximum welfare because it is the most transparent way of protection by a nation. Then from B and C , B would have more welfare weather in both the conditions B and C the firms have been provided quota.

Because in the conditions C quota licence is auctioned, and in the B licence is used as input,

And when licence is provided under auction there are chances of red tapism but when it is provided as input everyone can purchase it as a commodity at a given price.

Rahul Sunny answered 2 years ago

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