Aoslia is a small country that takes the world price of corn as given. Its domestic supply and demand for corn is given by the following: D = 45 - 3P and S = 3P - 9. Suppose the Aoslian government applies an import quota that limits imports to 12 bushels. Assume the world price is $5.
A) Determine the quantity demanded, quantity supplied, and new domestic price with the quota
B) Calculate the quota rent
C) Assuming that the quota licenses are allocated to domestic producers, what is the net effect of the quota on Aoslia’s welfare?
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