Figure 13-2
-Refer to Figure 13-2. Which of the following shifts shows the effects of an import quota?

Question

Figure 13-2 
-Refer to Figure 13-2. Which of the following shifts shows the effects of an import quota?

Quizplus · Accepted Answer

An import quota will decrease the supply of Canadian dollars (S-I) because it limits the amount of Canadian goods that can be imported, which in turn reduces the amount of Canadian dollars that can be earned from exports. This will cause a leftward shift of the supply of Canadian dollars (S-I) curve. As a result, the equilibrium exchange rate will increase (from E0 to E1) and the quantity of Canadian dollars exchanged will decrease (from Q0 to Q1). This is reflected in the shift from D0 to D1, which shows a decrease in the quantity of Canadian dollars demanded at each exchange rate.

Figure 13-2 -Refer to Figure 13-2. Which of the Following Shifts Shows