a) List 3 ways in which rents from quantitative restrictions can be allocated. In which case is the quantitative restriction most harmful for the importing country?

b) When the Multifibre Agreement (MFA) expired in 2005, the quality of T-shirts imported from China declined. Why?

c) Suppose that in Question 1, the government rather than using a tariff, decides to limit the quantity of imports to 4. All the quota licenses are given to the nephew of the minister of finance (no rent seeking). Show on a new graph the outcome of that policy, i.e. show changes in consumer surplus, producer surplus and mark the quota rents.

d) From the point of view of the aggregate welfare of the country - is the outcome worse than the tariff? (aggregate welfare is the sum of consumer surplus, producer surplus, tariff revenues and quota rents)