Rank the following in ascending order of Home welfare and justify your answers.
ID: 1111581 • Letter: R
Question
Rank the following in ascending order of Home welfare and justify your answers. If two items are equivalent, indicate this accordingly.
(i) Tariff of t in a small country corresponding to the quantity of imports M; (ii) Quota with the same imports M in a small country, with quota licenses distributed to Home firms and no rent seeking. (iii) Quota of M in a small country with quota licenses auctioned to Home firms. (iv) Quota of M in a small country with quota given to the exporting firms. (v) Quota of M in a small country with quota licenses distributed to rent-seeking Home firms.
Explanation / Answer
Ans =iv = v < i = ii = iii.
A tariff t matching imports M, & a quota on M import units matching tariff t are equal in terms of welfare as long as earnings from quota rentals remain within the nation & aren’t wasted by rent-seeking operations then i = ii = iii. When quota rentals are either given away to overseas corporations / are wasted totally by domestic corporations seeking access to rentals,the Home welfare falls by an equivalent sum(by the sum of quota rental):
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