Use the following figure to answer the questions : Figure 10-5 shows the domestic U.S.market for bananas and the global market for bananas.The domestic supply curve is given by SUPPLY US .With free trade,the equilibrium output in the U.S.market is Q.The import quota imposed by the government is equal to 0A.
-Which of the following correctly identifies the effect of an import quota on a good?
A)Domestic producers do not gain from an import quota.
B)The gain to domestic producers is higher than the loss to domestic consumers.
C)Prices in the global market will fall due to the imposition of an import quota.
D)Domestic consumers bear the burden of an import quota in terms of higher domestic prices.

Question

Use the following figure to answer the questions : Figure 10-5 shows the domestic U.S.market for bananas and the global market for bananas.The domestic supply curve is given by SUPPLY US .With free trade,the equilibrium output in the U.S.market is Q.The import quota imposed by the government is equal to 0A. 
-Which of the following correctly identifies the effect of an import quota on a good?
A)Domestic producers do not gain from an import quota. 
B)The gain to domestic producers is higher than the loss to domestic consumers. 
C)Prices in the global market will fall due to the imposition of an import quota. 
D)Domestic consumers bear the burden of an import quota in terms of higher domestic prices.

Quizplus · Accepted Answer

When an import quota is imposed by the government, the supply of bananas in the domestic market is restricted, which leads to higher domestic prices. Since the supply is restricted, the domestic consumers have to pay a higher price to purchase the same quantities of bananas, and hence they bear the burden of the import quota in terms of higher domestic prices. Therefore, option D is the correct choice. Option A is incorrect because domestic producers gain from an import quota as it protects them from cheap imports. Option B is incorrect because the gain to domestic producers may not necessarily be higher than the loss to domestic consumers, as it depends on the magnitude of the quota and the elasticity of demand and supply. Option C is incorrect because the imposition of an import quota may lead to an increase in global prices, as there is a reduction in the quantity of bananas supplied to the global market.

Use the Following Figure to Answer the Questions : Figure