Imported quota - Trade protectionism

• What type of limit is an import quota?

  Quantity limit
• What does an import quota limit?

  Number of imports
• In the context of protectionism diagrams, what is a good starting point?

  Free trade
• On a free trade diagram, what is q1?

  Domestic supply at price PW
• On a free trade diagram, what is q2?

  Domestic demand at price PW
• In a free market, what does the difference between q2 and q1 represent?

  Number of imports
• If an import quota is set at q3, what quantity of imports are allowed?


  Up to q3
• With a quota set at q3, what does the segment q1 to q3 represent?

  Capped level of imports
• After imposing an import quota, what does the segment between Q3 and Q2 represent?

  Excess demand
• What does excess demand after a quota implementation cause?

  Increase in price
• After the quota is imposed, how does one find the new market price on the diagram?

  Go up from quota value to supply
• What effect does a higher price have on domestic suppliers?

  Incentivizes them to enter the market
• After a quota is put in place, what needs to be shown on the diagram with the supply curve?

  A shift of supply
• What causes the supply shift after a quota is imposed?

  Incentives of the price mechanism
• As a result of the price increase following a quota, what happens to domestic supply?

  It increases
• After a quota and the subsequent price increase, what happens to domestic demand?

  It contracts
• Due to the price increase after a quota, what happens to consumer surplus?

  There is a deadweight loss
• What does the deadweight loss of consumer surplus represent?

  Unrecovered loss
• What does the deadweight loss of efficiency represent when domestic suppliers produce extra units?

  Higher marginal cost of production
• Compared to foreign producers with a comparative advantage, what is true of domestic suppliers after a quota?

  They're less efficient
• After a quota, what has happened to domestic suppliers' production?

  Increased production from q1 to q4
• How might increased domestic production due to a quota affect domestic firms?

  Benefit from economies of scale
• How does a quota affect the practice of dumping?

  Negates some of that dumping
• How does more domestic supply due to a quota affect domestic employment?

  Most likely increase
• How does a quota potentially affect low-cost labor arguments?


  Dampen that argument
• How might protectionism be used to improve the composition?

  Heavily restricting imports
• What is the hoped for effect on import expenditure from restricting imports?

  Decrease enough to improve composition
• In free trade, how is excess demand usually met?

  Through imports
• What creates the new supply curve after a quota?

  Incentives of the price mechanism
• Why do domestic suppliers increase supply after a quota?

  Higher price needing to be rationed
• How does calculating the deadweight loss of consumer surplus after a quota compare to calculating it after a tariff?

  It works in the same way