Monday, August 31, 2015

August 31 Workpoint 22.5

Domestic producers win by the imposition of the quota, because the amount that they supply has risen from Q1 to Q1 + (Q4-Q3). They also win because they are now selling at PQuota, which is more than the previous price (Pw). Why does this make them winners? Because their revenue increased from a to a+c+d+f+i+j.

Importers lose by the imposition of the quota, because they used to supply (Q2-Q1), but now only supply (Q3-Q1) due to the quota. Even though they charge more per unit, their revenue has gone from b+c+d+e to b+g+h. If this is a decrease in revenue, which it appears to be, then importers qualify to hold a position in the losers column. 

Consumers lose by the imposition of the quota, because they have to pay PQuota for textiles, as opposed to Pw if there was no quota. Thus, the consumers lose, because they need to spend more money on textiles.

The world loses by the imposition of the quota, because the area labeled as j represents the inefficiency of the domestic producers. This is a loss of world efficiency, because more resources are being used than are necessary to produce textiles in Europe. Inefficient use of the world's resources, in this situation, make the world one of the losers.

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