The figure given below shows the market for moped imports in the country. D_M and S_X are the domestic demand for imports and export supply curves respectively. As a result of the quota being imposed on moped imports by this country, the world as a whole will:

Question

Quizplus · Accepted Answer

With the quota imposed, the quantity of moped imports will decrease from Q1 to Q2. The domestic price of mopeds will increase from P1 to P3 while the world price will fall from P1 to P2. In this case, the domestic welfare will increase by area a+b+c but the world welfare will decrease by area a+b+c+d+e+f. Numerically, we can calculate:

Domestic welfare change = (P3-P1) x (DS1U1B1-Q2)
= ($2,000-$1,500) x (40,000-30,000)
= $500 x 10,000
= $5 million

World welfare change = (P2-P1) x (Q1-Q2) - (P2-P0) x (Q2-Q0)
= ($1,800-$1,500) x (60,000-30,000) - ($1,800-$2,200) x (30,000-10,000)
= $300 x 30,000 - $400 x 20,000
= $9 million - $8 million
= $1 million loss

Therefore, the world as a whole will lose $1 million.

The Figure Given Below Shows the Market for Moped Imports