A quota generates a protective effect just like a tariff. Using the graph, calculate the “equivalent import tariff” that would produce the same result as an import quota of 200 units.

Question

BlackTom AI · Accepted Answer

Restating the scenario helps frame the analysis: a quota is imposed on imports, limiting the quantity to 200 units, and we are to find the tariff that would generate the same price and welfare outcome as that quota, using the given graph.

First, observe the price levels indicated on the graph. The World price line sits at $6. Under free trade, this is the price at which imports would enter the country if no tariff or quota were used. The graph also shows a higher domestic price of $9 resulting from policy-imposed restrictions, such as a tariff or quota, which reduces imports.

Now, consider how the quota of 200 units affects the market. The quota reduces the quantity of imports to a level where the domestic price rises from the world price of $6 to the higher price of $9. This price increase is the primary mechanism by which a quota raises domestic prices and limits imports: it makes domestic consumers pay more for the same good and reduces the quantity imported to 200 units.

To find the equivalent tariff, focus on the price difference created by the policy. A tariff raises the domestic price by the amount needed to reduce imports to the same level (200 units) as the quota. From the graph, the price with the quota rises from $6 to $9, a difference of $3 per unit.

Therefore, the tariff that would produce the same outcome (same domestic price and same import quantity of 200) must also be $3 per unit. In other words, the equivalent import tariff equals the price gap introduced by the quota, which is $3.

In summary, the key steps are: identify the world price ($6), note the elevated price under the policy ($9), compute the price increase ($9 − $6 = $3), and interpret that amount as the tariff that would yield the same import quantity and price outcome.

A quota generates a protective effect just like a tariff. Using the graph, calculate the “equivalent import tariff” that would produce the same result as an import quota of 200 units.Single choice

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