6 . Import quotas Kazakhstan is a grape producer, as well as an importer of grapes. Suppose the following graph shows Kazakhstan’s domestic market for grapes, where SK is the supply curve and DK is the demand curve. The free trade world price of grapes (PW ) is $800 per ton. Suppose Kazakhstan’s government restricts imports of grapes to 60,000 tons. The world price of grapes is not affected by the quota. Analyze the effects of the quota on Kazakhstan’s welfare. On the following graph, use the purple line (diamond symbol) to draw the Kazakhstan’s supply curve including the quota SK Q . (Hint: Draw this as a straight line even though this curve should be equivalent to the domestic supply curve below the world price.) Then use the grey line (star symbol) to indicate the new price of grapes with a quota of 60,000 grapes. S K Q Price with Quota Change in PS Quota Rents DWL 0 20 40 60 80 100 120 140 160 180 200 4000 3600 3200 2800 2400 2000 1600 1200 800 400 0 PRICE (Dollars per ton) QUANTITY (Thousands of tons) D K S K P W Area: 0 In the previous graph, use the green area (triangle symbol) to shade the area that represents the effect of the quota on domestic producer surplus (PS) relative to domestic producer surplus under free trade. Use the tan quadrilateral (dash symbols) to shade the area that represents the quota rents. Finally, use the black areas (plus symbol) to indicate the deadweight loss (DWL) resulting from the quota’s consumption and protective effects. The equivalent import tariff for Kazakhstan’s grape import quota is $ per ton of grapes. If Kazakhstan’s government auctions off the quota licenses in a well-organized, competitive auction, Kazakhstan experiences a deadweight loss of $ . (Hint: Select a shaded region to see its area. Be sure to adjust for the units on the quantity axis.) Continue without saving