Suppose that the free-trade offer curve of country I is drawn with country I's exports of good A on the horizontal axis and country I's imports of good B on the vertical axis. If country I now places an import quota of 100 units of good B, country I's offer curve
A) will have its normal free-trade appearance up to 100 units on the vertical axis and then will become a horizontal line back to the vertical axis.
B) will have its normal free-trade appearance up to 100 units on the horizontal axis and then will become a vertical line going upward and parallel to the vertical axis.
C) will shift to the left or vertically upward by 100 units at each level of exports of good A.
D) will shift to the right or vertically downward by 100 units at each level of exports of good A.

Question

Quizplus · Accepted Answer

An import quota limits the amount of goods that can be imported. In this case, with a quota of 100 units on good B, country I's willingness to trade (offer curve) remains unchanged up to the point of 100 units of good B. Beyond this quota, country I cannot import more of good B regardless of how much more of good A it is willing to export, hence the offer curve becomes a horizontal line indicating no further increase in imports of good B beyond the quota.

Suppose That the Free-Trade Offer Curve of Country I Is