The diagram below shows the domestic demand and supply curves for cotton towels in Canada.The prevailing world price of cotton towels is P_W.Assume that all cotton towels are identical. FIGURE 33-3 Refer to Figure 33-3.If the Canadian government imposes a quota on imported cotton towels of the amount (Q₃ - Q₂),then foreign producers' revenues from their sales in Canada will be equal to the area

Question

Quizplus · Accepted Answer

The quota will shift the domestic supply curve to the right by the amount of the quota. This will reduce the quantity of imports to QS1U1B13S1U1B0, leaving a gap between the quantity demanded and supplied in Canada. This will cause the price to rise to PS1U1B13, which is higher than the world price. The foreign producers' revenues from their sales in Canada will be equal to the area C + H, which represents the difference between the price paid by Canadian consumers and the price received by foreign producers for the quantity of imports allowed by the quota. Areas B, D, G, and I represent the deadweight loss of the quota.

The Diagram Below Shows the Domestic Demand and Supply Curves