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The nation of Acirema is "small" and unable to affect world prices. It imports peanuts at the price of $10 per bag. The demand and supply curves are:
D = 400 -10P S= 50 + 5P.
Determine the free trade equilibrium. Then calculate and graph the following effects of an import quota that limits imports to 50 bags.
1. The increase in the domestic price.
2. The quota rents.
3. The consumption distortion loss.
4. The production distortion loss.
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