The Effects of an Import Quota under Competitive Conditions
(Figure 9.2)

An import quota defines a set number of imports allowed to enter a country. In panel A above, we see the competitive market for bicycles. It is possible to impose a quota which will have the equivalent effect on imports as the $30 tariff we saw in Key Graph 2 (Figure 8.4). In order to show the quota, we draw a "new" supply curve which represents Sd+QQ where QQ is the size of the quota. The domestic price with the quota is found where the Sd+QQ line crosses the domestic demand curve (Dd). Press the show quota button below to show this change on the graph above. Click continue when you are ready to move on to the next page.