The diagram below shows the domestic demand and supply curves for cotton towels in Canada. The prevailing world price of cotton towels is PW. Assume that all cotton towels are identical. FIGURE 34- 3
-Refer to Figure 34- 3. If the Canadian government imposes a quota on imported cotton towels of the amount (Q3 - Q2), then the deadweight loss to the Canadian economy is shown by the area

Question

The diagram below shows the domestic demand and supply curves for cotton towels in Canada. The prevailing world price of cotton towels is PW. Assume that all cotton towels are identical.  FIGURE 34- 3
-Refer to Figure 34- 3. If the Canadian government imposes a quota on imported cotton towels of the amount (Q3 - Q2), then the deadweight loss to the Canadian economy is shown by the area

Quizplus · Accepted Answer

The deadweight loss is the loss of consumer and producer surplus that results from a quota. In this case, the quota is (Q3 - Q2), which means that the quantity of towels imported will be reduced from Q3 to Q2. The deadweight loss is the area below the demand curve and above the supply curve between Q2 and Q3. This area is B + C + D.

The Diagram Below Shows the Domestic Demand and Supply Curves