The following graph shows the demand for and the supply of a good in a country. If the world price of the good is $2.00 per unit and an import quota of 50 units per month is imposed, then:
Figure 19.6

Question

The following graph shows the demand for and the supply of a good in a country. If the world price of the good is $2.00 per unit and an import quota of 50 units per month is imposed, then: ​
Figure 19.6
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Quizplus · Accepted Answer

At $2.00 per unit, the quantity demanded is 200 units and the quantity supplied is 125 units. If an import quota of 50 units per month is imposed, domestic production has to increase by the same amount the imports were reduced, which is 50 units. Therefore, domestic production will increase from 100 to 150 units per month, resulting in a total domestic supply of 150+50=200 units per month. This new equilibrium at a price of $2.00 per unit will have a quantity demanded of 200 and a quantity supplied of 200, meaning there will be no shortage or surplus of the good.

The Following Graph Shows the Demand for and the Supply