Exercise

1. The table below shows the demand and supply schedule for good X in country
A, a small nation that is unable to affect world prices.

Price (RM) Qd QS
100 900 0
200 700 200
300 500 400
400 300 600
500 100 800

(a) Suppose Country A imports good X at price of RM150 each. Under free trade, how
many units of good X does the country produce, consume, and import?
(b) Assume that Country A imposes a quota that limits imports to 300 units of good X.
Determine the quota induced price increase and the resulting decrease in consumer
surplus.
(c) Calculate the quota’s redistributive effect, consumption effect, protective effect, and
revenue effect.
(d) Suppose that there are many importers and there is only one exporter, who will
earn the revenue effect and at which price the importers will buy a unit of good X?
(e)