here i is deadweight loss of producers, but meanwhile, it is included into the revenues of domestic producers. Is it right? I think it cannot be deadweight loss then.
"i" is the deadweight loss of efficiency, to be more exactly. It can still count as the revenue of domestic producers, but as we assume that the world supply is more efficient than the domestic one, it can also show a loss of efficiency
For those wondering at the surpluses who see this comment, Consumer surplus is decreased by E+F+G+H+I+J and DWL of J. Producer surplus Would originally be the inner triangle of region A next to y-axis , now there is gain in E+F . Overall welfare loss as CS loss outweighs PS gains
Great video Dal as always, thanks so much, and I'm not totally sure about this. But surely a quota doesn't increase the price of imports? For example, a tariff is a tax, and therefore increases the price of imports from a domestic point of view. But a quota only limits the amount of a good entering a country, it doesn't mess with the prices of imports? I always thought that the price change was from domestic suppliers only (not foreign), since domestic suppliers have to charge a higher price as they don't have a comparative advantage, and thus have greater costs = higher prices. And with the quota limiting imports, domestic firms will have tons of excess demand, driving up prices - but only DOMESTIC prices. I'm not sure if i'm wrong?
but here we're looking at the imports demand in the country so if there is a quota on imports it will increase the price of imports as because of the law of supply prices rise when supply rises but here the problem is the rise in supply is taken by domestic producers and a higher price given to importers with less quantity being supplied. Domestic demand will affect import prices the exact same way our exports are affected by foreign demand. The only reason we're importing is because we cant suffice demand but if demand for imports decreases so will imports decrease and prices will decrease as the law of demand
QIAN JUNYAN it does not have any effect..as a quota is meant to decrease quantity and if it is in the right side..it mean quantity increased..which is wrong..it should be in the left of Equilibrium quantity to show less quantity being available..
This is wrong. The higher price due to the quota causes domestic producers to supply more (a movement upwards along the supply curve) and it's evident from the graph as well. So domestic supply would be increasing from Q1 to Q3. The quantity imported is shown through the horizontal distance between the two supply curves or basically the distance between domestic supply curve and where the new 'supply + quota' curve intersects the demand curve. The supply + quota curve is basically showing the total supply including the amount that's imported. so Q1Q4 is the amount that's imported or the amount of the quota.
Hi - I understand why the price rises due to the quota (as world supply is being restricted) but I don't understand why the rise in price causes the domestic supply curve to shift outwards (why isn't there just movement along the supply curve)?
If I’ve got this right…. Supply shifts outward because there is a restriction in supply artificially caused by the quota-NOT the price rise. Remember that supply shifts due to factors not related to changes in price. In this case, the factor is the addition of a quota, which is not a price rise by itself. A quota is just a government decision that limits supply.
@@yashigupta7245 I think it's the world supply here that's being restricted - causing the domestic supply to increase their quantity provided by the size of the quota.
Not dal so I might be wrong, but consumer surplus is the area below the demand curve above the price, so CS has fallen from e + f + g + h + i + j + that big unmarked triangle up there to only that big unmarked triangle. As for producer surplus, it's the area above the supply curve below the price, so it's increased from half of a on that diagram (so the upper triangle of the box that makes up a), to half of a + e + f + g + h
I think the domestic supply quantity is wrong, domestic firms will supply up to Q3, not up to Q4. In addition, imports would be Q3Q4 not Q1Q3. Also the DWL area to domestic economy is G,H,I,J, not only I,J. Look at other diagrams online and they will verify this.
@@AbdulrahmanAl-Anzy no clue mate it’s been a few months since I’ve done econ. I’m not 100% sure that what I said was right but I’m pretty sure that what he explains is wrong
it IS an increase in domestic producer revenue, however, this producer revenue goes to the inefficient producers. Think about this, originally, the world efficiency meant that the price could stay at Pw. Now that there is a quota, from Q3 to Q4, the domestic producers that were previously unable to supply at a price as low as Pw can now supply, as shown by the line. This means that these producers that were previously not efficient enough to compete with the world price are now supplying. If they were unable to be as efficient as the world price, that is a loss in the world efficiency, as these low cost imports are being replaced by higher cost domestic goods and services, therefore, that is a deadweight loss to the world, and a revenue to the inefficient producers.
I have an eco exam in 6 hrs and this video clears alot of doubts up, thanks
Thanks, it helped me a lot and this video have cleared my misconceptions brought by my teacher.
Very well explained videos and very helpful for the IB
tell me about it pablo
here i is deadweight loss of producers, but meanwhile, it is included into the revenues of domestic producers. Is it right? I think it cannot be deadweight loss then.
"i" is the deadweight loss of efficiency, to be more exactly. It can still count as the revenue of domestic producers, but as we assume that the world supply is more efficient than the domestic one, it can also show a loss of efficiency
Very nice, but it would also help if you could include the surplus discussion in it, not only revenue.
For those wondering at the surpluses who see this comment, Consumer surplus is decreased by E+F+G+H+I+J and DWL of J. Producer surplus Would originally be the inner triangle of region A next to y-axis , now there is gain in E+F . Overall welfare loss as CS loss outweighs PS gains
great vid easy to understand
Can a quota sometimes bring more advantages in comparison with a tariff? Which one is the best option?
Tariffs are better since they generate revenue for the government unlike quotas and also the welfare loss from quotas is greater than from tarrifs
@@sammyruks2361 why is welfare lost higher on quota
Great video Dal as always, thanks so much, and I'm not totally sure about this. But surely a quota doesn't increase the price of imports?
For example, a tariff is a tax, and therefore increases the price of imports from a domestic point of view.
But a quota only limits the amount of a good entering a country, it doesn't mess with the prices of imports? I always thought that the price change was from domestic suppliers only (not foreign), since domestic suppliers have to charge a higher price as they don't have a comparative advantage, and thus have greater costs = higher prices. And with the quota limiting imports, domestic firms will have tons of excess demand, driving up prices - but only DOMESTIC prices.
I'm not sure if i'm wrong?
but here we're looking at the imports demand in the country so if there is a quota on imports it will increase the price of imports as because of the law of supply prices rise when supply rises but here the problem is the rise in supply is taken by domestic producers and a higher price given to importers with less quantity being supplied. Domestic demand will affect import prices the exact same way our exports are affected by foreign demand. The only reason we're importing is because we cant suffice demand but if demand for imports decreases so will imports decrease and prices will decrease as the law of demand
What if the quota is at the right side of the equilibrium quantity?
QIAN JUNYAN it does not have any effect..as a quota is meant to decrease quantity and if it is in the right side..it mean quantity increased..which is wrong..it should be in the left of Equilibrium quantity to show less quantity being available..
@@mobin-despoubellespascomme7727 I think he meant the equilibrium quantity before free trade
THANK YOUUUUUUU!!!!!!!
This is wrong. The higher price due to the quota causes domestic producers to supply more (a movement upwards along the supply curve) and it's evident from the graph as well. So domestic supply would be increasing from Q1 to Q3. The quantity imported is shown through the horizontal distance between the two supply curves or basically the distance between domestic supply curve and where the new 'supply + quota' curve intersects the demand curve. The supply + quota curve is basically showing the total supply including the amount that's imported. so Q1Q4 is the amount that's imported or the amount of the quota.
I agree it is wrong but I think Q3Q4 would be the amount imported wouldn’t it?
what are the consumer and producer surplus in this diagram???
The difference between q3 and q4 is imports..why would they produce that..??please answer..😣
the difference between q1 and q3 is imports that the quota that is placed.the difference btween q3 and q4 are being produced by domestic suppliers
thank you , thats really help
thankyou i have a better understanding now
Hi - I understand why the price rises due to the quota (as world supply is being restricted) but I don't understand why the rise in price causes the domestic supply curve to shift outwards (why isn't there just movement along the supply curve)?
If I’ve got this right….
Supply shifts outward because there is a restriction in supply artificially caused by the quota-NOT the price rise. Remember that supply shifts due to factors not related to changes in price. In this case, the factor is the addition of a quota, which is not a price rise by itself. A quota is just a government decision that limits supply.
Since there is restrictions in supply so why it shifts outward. In that case it should shifts inward.
@@yashigupta7245 I think it's the world supply here that's being restricted - causing the domestic supply to increase their quantity provided by the size of the quota.
Would you pls explain the surplus on this graph?
Not dal so I might be wrong, but consumer surplus is the area below the demand curve above the price, so CS has fallen from e + f + g + h + i + j + that big unmarked triangle up there to only that big unmarked triangle. As for producer surplus, it's the area above the supply curve below the price, so it's increased from half of a on that diagram (so the upper triangle of the box that makes up a), to half of a + e + f + g + h
can you explain why i+j is the DWL please
I think the domestic supply quantity is wrong, domestic firms will supply up to Q3, not up to Q4. In addition, imports would be Q3Q4 not Q1Q3. Also the DWL area to domestic economy is G,H,I,J, not only I,J. Look at other diagrams online and they will verify this.
what type of DWL is H then?
@@AbdulrahmanAl-Anzy no clue mate it’s been a few months since I’ve done econ. I’m not 100% sure that what I said was right but I’m pretty sure that what he explains is wrong
@@niccolosmith5499 oh alright nw
do we have to know about the change in CS and PS?
My teacher want us to know, and also the differences between tariffs and import quotas.
How come i is increased domestic producer revenue but also DWL?
it IS an increase in domestic producer revenue, however, this producer revenue goes to the inefficient producers. Think about this, originally, the world efficiency meant that the price could stay at Pw. Now that there is a quota, from Q3 to Q4, the domestic producers that were previously unable to supply at a price as low as Pw can now supply, as shown by the line. This means that these producers that were previously not efficient enough to compete with the world price are now supplying. If they were unable to be as efficient as the world price, that is a loss in the world efficiency, as these low cost imports are being replaced by higher cost domestic goods and services, therefore, that is a deadweight loss to the world, and a revenue to the inefficient producers.
@@user-jh3kz7dp2z thanks, that's been bothering me for quite a while now!
Why foreign producer revenue is B+C+D to B+F+G, why isn't it H+I+C? (Would really appreciate if you can reply. Thanks! :))
because form Q3 to Q4 is domestic supply therefore domestic revenue
thanks a lot
What do you mean by deadweight loss of consumer surplus
I think this is only needed for ocr
edexcel need it too
Would it not be easier to say Q4 instead of Q1+Q3-Q4
Wouldn’t d be a welfare loss of some sort as domestic producers don’t gain the revenue that foreign producers initially had?