When the government of Trade land decides to impose an import quota on foreign cars, three proposals are suggested: (1) sell the import licences in an auction; (2) distribute the licences randomly in a lottery; (3) let people wait in line and distribute the licences on a first-come, first served basis. Compare the effects of these policies. Which policy do you think has the largest deadweight losses? Which policy has the smallest deadweight losses? Why? (Hint: The government’s other ways of raising tax revenue all cause deadweight losses themselves.) List three arguments for and against Australia trading with developing countries that have weak labour laws. Which arguments do you think are stronger? Why?


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