1. AN IMPORT QUOTA IS IMPOSED
DEADWEIGHT
LOSS =
1/2(Z$10x90) =
Z$ 450
THE DOMESTIC MARKET FOR WATER
INCREASE IN
PRODUCER SURPLUS
DECREASE IN
CONSUMER SURPLUS
INTERNATIONAL TRADE BEGINS
QUOTA RENT
Z$ 700
QUOTA: 70
IMPORTS=160 P S
S + Q
P* =Z$50
P =Z$ 40
130 60
P* =Z$30
World price 20 90
180 D Q
WATER MARKET
Trade and welfare

2. WHAT HAPPENS NOW WHEN THERE IS AN INCREASE IN DEMAND?
WITH TARIFF LEVIED
WITH QUOTA IMPOSED
QUOTA: 70 P D’ S
S + Q
Domestic Price after Tariff
P* =Z$52
180
P =Z$ 40
130
220 60
World price
P =Z$30 90 D Q
WATER MARKET
Trade and welfare