Alright, so I've got a big practice problem here. Let's just dive right in. Suppose the USA currently both produces and imports wacky waving inflatable arm flailing tube men. The government decides to restrict international trade by imposing a quota that limits the import of wacky wavy inflatable arm flailing tube men to 4,000 units. The figure shows the results of the quota.
Fill in the following table using the data in the figure. Alright. So we've got an import quota of 4,000 units, and we've got a graph here, with a bunch of information. So let's go ahead and start seeing what they're asking us here in this question. They're going to ask us a bunch of information, right, without the quota and with the quota, what changes? So let's start here with the world price. What is the world price with and without the quota?
So without the quota, we've got this low price, right? As we've seen, there's going to be this low price in the market, and that's going to be our world price, right? That's the world price, and what the quota is going to do is essentially increase that price a little bit. So we know that the lower of the two is going to end up being the world price. So the world price here without the quota is going to be $10. How about with the quota? Well, it's still going to be $10. The price everywhere else, everywhere in the world, is $10. It's just in our market, in our USA market here, that we're going to be affecting that price.
So what are we going to see? What's going to be the USA price without the quota? Well, without the quota, we're going to see that we're at that $10, right? The USA price is going to equal the world price without the quota, but now when we add the quota, we're going to increase, essentially the price is going to find its way up to here, right, because of the quota. There's going to be fewer imports, it's going to restrict trade a little bit, it's going to cause that price to increase. Alright? So what do we see? With the quota, the US price has gone up to $12.
Alright, let's go on to the next one here. It's asking us the quantity supplied by US firms. Alright? So the quantity supplied by US firms without the quota is going to be where that price, the world price, touches the supply curve. So here we've got our supply curve. Let me do it in a different color. And we've got this point right here, right? The world price touches the supply curve right there, and we see that that's at a quantity supplied of 6,000 units, right? So that's going to be the quantity supplied without the quota. So the quantity supplied without quota is going to be 6,000 units. And what's going to happen with the quota? Well, when we do add the quota, it's going to essentially get us to this higher price, the $12, right? So what are US producers going to put on the market at $12? Well, it's where it touches the supply curve, right? So the $12 touches the supply curve right there, and we're going to see that the quantity supplied with the quota, I'm going to put an 'q' there for the quota, has gone up to 10,000. Right? And that's because there's a higher price, so they're willing to put more units out there. So 10,000 units are going to be the quantity supplied with the quota.
How about the quantity demanded by US consumers without the quota first? So without the quota, just in the same way, we're going to be at that world price. Right? So without the quota, the demand curve touches the world price way out here, and we're going to see that this is going to be the quantity demanded domestically, right, without the quota. They're going to be demanding 16,000 units. And what's going to happen after the quota? Well, we're going to move to this other point, right? It's where it touches the $12 line. The demand curve touches the $12 line right there, and that's at 14,000 units. So that's the quantity demanded with the quota. Right? So we've got 14,000 units there, and what do we see in the middle of here? Right? So if we look right in between the 10,000 and the 14,000, right, the difference between these, that's the amount of the quota. It told us above that the import quota was 4,000 units, right. It told us that, the government's going to set a quota of 4,000 units and that's exactly what we see here. Right? That's the distance between the quantity demanded and quantity supplied with the quota.
So let's go ahead and see the quantity imported. So the quantity imported without the quota, right, that's going to be the difference between the quantity demanded and quantity supplied without the quota. So what were our quantity demanded and quantity supplied without the quota? Well, it was 16,000, was the quantity demanded, right, minus the quantity supplied was 6,000. So the difference there of 10,000 is going to be the amount of imports when we didn't have a quota. Alright. So that's going to be 10,000 units being imported without the quota, and that makes sense.
Alright, cool. So let's go on to the next one and talk about the area of consumer surplus. So what was the area of consumer surplus without the quota? So without the quota, it's everything above the price, right, which the price was $10 in that situation, but below the demand curve, and that's going to give us this big triangle here that includes everything, a, b, c, d, e, and f. Right. It includes all of those regions. So our consumer surplus without the quota, I'm going to write the area of a plus b plus c plus d plus e plus f. Right? They have all of those sections. Now what about without the quota, or excuse me, with the quota, so I'm going to erase all that. With the quota, we've got this higher price. Right? So we're going to see that consumer surplus is everything above that price of $12, but under the demand curve, and we're going to get this big region right here, a plus b. Right? So they've lost that section c, d, e, f, and all that's left is that a plus b. So the consumer surplus has decreased, right, and that's what we expect with an import quota and we've got a consumer surplus of a+b. How about the domestic producer surplus? So we're talking only about the domestic producers, and before, before the quota, right, right, without the quota, what was their surplus? Their surplus was just this section g, right, because it's everything below the price but above the supply curve. It was just g without the quota. Alright? And what about with the quota? Well, now we've got a higher price, right? So they're able to capture a little more surplus. So it's still going to have g but it's going to include this section C as well, right? Because that's under the price and above the supply curve. Cool. So that area right there is going to be c+g. Right? So they've gotten that extra bit of surplus because of the higher price. Now what about deadweight loss? Without the quota, as we've seen, right, when there's free trade, there's no deadweight loss, right? All of the sections are being captured as surplus. Now when we add this quota, we're restricting trade, captured as surplus. Now when we add this quota, we're restricting trade. We're going to lose some of those trades here, right? And remember, we talked about the bridge of deadweight loss. So when we talk about international trade, we've got the bridge of deadweight loss, and it's going to be like this. Right? We build our bridge right here. The international trading bridge of deadweight loss. So here we go. We've got this section d and f. That is going to be our deadweight loss. Cool. So that's about it here. We've seen where all these sections are, right? We've pulled out all these numbers and notice on the graph they tricked us. They gave us these sections h, I, j, k, right? We don't those don't end up being anything right? They're just extra sections and we know that that section E with the quota, right? That section E is going to be surplus to foreign producers, right? If it was a tariff instead of a quota, that would have been government revenue inside of section E.
Alright, cool. Let's go ahead and move on to the next video.