Under pressure from the Canadian and U.S. governments in the early 1980s, Japanese automobile producers agreed to restrict their exports to the North American market. After the formal agreement anded, the Japanese producers decided unilaterally to continue restricting their exports. Carefully review the accompanying figure, and then answer the following questions. a. Explain why the Japanese producers would voluntarily continue these restrictions. Japanese producers would voluntarily continue these restrictions because as a result of these restrictions, OA. their surplus will increase because they will have lower transportation and transaction costs per unit sold. OB. the Japanese government will be able to negotiate better terms of trade. OC. their surplus will increase because they will earn more revenue per unit sold. OD. they will face less competition in Japan from foreign producers. Pa Pw 1 Qo Permitted level of Imports Q₂ Quantity Q3 (4) Q₁ D An import quota drives up the domestic price and imposes a deadweight loss on the importing country. With free trade, the domestic price is the world price, P. Imports are QoQ₁. If imports are restricted to only Q₂ Q3, the domestic price must rise to the point where the restricted level of imports just satisfies the domestic excess demand-this occurs only at pg. The rise in price and reduction in consumption reduces consumer surplus by areas 1+2+3+4. Domestic producers increase their output as the domestic price rises, and producer surplus increases by area 1. Area 3 does not accrue to the domestic economy; instead this area represents extra producer surplus for the foreign firms that export their product to this country. The net effect of the quota is a deadweight loss for the importing country of areas 2+3+4. Import quotas are, therefore, worse than tariffs for the importing country.
Under pressure from the Canadian and U.S. governments in the early 1980s, Japanese automobile producers agreed to restrict their exports to the North American market. After the formal agreement anded, the Japanese producers decided unilaterally to continue restricting their exports. Carefully review the accompanying figure, and then answer the following questions. a. Explain why the Japanese producers would voluntarily continue these restrictions. Japanese producers would voluntarily continue these restrictions because as a result of these restrictions, OA. their surplus will increase because they will have lower transportation and transaction costs per unit sold. OB. the Japanese government will be able to negotiate better terms of trade. OC. their surplus will increase because they will earn more revenue per unit sold. OD. they will face less competition in Japan from foreign producers. Pa Pw 1 Qo Permitted level of Imports Q₂ Quantity Q3 (4) Q₁ D An import quota drives up the domestic price and imposes a deadweight loss on the importing country. With free trade, the domestic price is the world price, P. Imports are QoQ₁. If imports are restricted to only Q₂ Q3, the domestic price must rise to the point where the restricted level of imports just satisfies the domestic excess demand-this occurs only at pg. The rise in price and reduction in consumption reduces consumer surplus by areas 1+2+3+4. Domestic producers increase their output as the domestic price rises, and producer surplus increases by area 1. Area 3 does not accrue to the domestic economy; instead this area represents extra producer surplus for the foreign firms that export their product to this country. The net effect of the quota is a deadweight loss for the importing country of areas 2+3+4. Import quotas are, therefore, worse than tariffs for the importing country.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Under pressure from the Canadian and U.S. governments in the early 1980s, Japanese automobile
producers agreed to restrict their exports to the North American market. After the formal agreement
ended, the Japanese producers decided unilaterally to continue restricting their exports. Carefully review
the accompanying figure, and then answer the following questions.
a. Explain why the Japanese producers would voluntarily continue these restrictions.
Japanese producers would voluntarily continue these restrictions because as a result of these restrictions,
O A. their surplus will increase because they will have lower transportation and transaction costs per
unit sold.
O B. the Japanese govemment will be able to negotiate better terms of trade.
OC. their surplus will increase because they will earn more revenue per unit sold.
ⒸD. they will face less competition in Japan from foreign producers.
Pd
Pw
(1)
Qo
Permitted level
of Imports
Q₂
Quantity
Q3 Q₁
1
S
D
✅ƠN
An import quota drives up the domestic price and imposes a deadweight loss on the importing country.
With free trade, the domestic price is the world price, pw. Imports are QoQ₁. If imports are restricted to
only Q₂ Q3, the domestic price must rise to the point where the restricted level of imports just satisfies
the domestic excess demand-this occurs only at pd. The rise in price and reduction in consumption
reduces consumer surplus by areas 1+2+3+4. Domestic producers increase their output as the
domestic price rises, and producer surplus increases by area 1. Area 3 does not accrue to the domestic
economy; instead this area represents extra producer surplus for the foreign firms that export their
product to this country. The net effect of the quota is a deadweight loss for the importing country of
areas 2+3+4. Import quotas are, therefore, worse than tariffs for the importing country.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education