1. How low must a quota be in effect to have an impact? Using a demand-and-supply

diagram, illustrate and explain the net welfare loss from imposing such a quota. Under
what circumstances would the net welfare loss from an import quota exceed the net
welfare loss from an equivalent tariff (one that results in the same price and import level
as the quota)?

2. Explain the national defense, declining industries, and infant industry arguments for

protecting a domestic industry from international competition.

3. Use these data to answer the following questions about the market for British pounds:

Price of pounds (in $)
$4.00
3.00
2.00

Quantity
Demanded
(of pounds)

Quantity
Supplied
(of pounds)

50
75
100

100
75
50

a. Draw the demand and supply curves for pounds, and determine the equilibrium exchange rate
(dollars per pound).
b. Suppose that the supply of pounds doubles. Draw the new supply curve.
c. What is the new equilibrium exchange rate?
d. Has the dollar appreciated or depreciated?
e. What happens to U.S. imports of British goods?