Question 3

Zootopia is a small country that imports tennis balls. The graph below shows the

supply and demand for tennis balls in Zootopia as well as the international market

for tennis balls.

a) Suppose the country imposes an import quota of 20 tennis balls. Graphically

show how this affects the quantity of imports and the price of tennis balls in

Zootopia.

b) Calculate the gains and losses to the consumer and domestic producers.

c) If import licenses are distributed using an auction, calculate the exact gains

and losses to Zootopia's government and to foreign producers.

d) Calculate the deadweight loss.