Watch The Effects of an Import Quota Figure 9.7

(a) shows the situation with free international trade. Figure 9.7

(b) shows what happens with a quota that limits imports to 10 million T-shirts a year. The U.S. supply curve of T-shirts becomes the domestic supply curve, S , plus the quantity that the quota permits to be imported. So the U.S. supply curve becomes the curve labeled

. The price of a T-shirt rises to $7, the quantity of T-shirts bought in the United States decreases to 45 million a year, the quantity of T-shirts produced in the United States increases to 35 million a year, and the quantity of T-shirts imported into the United States decreases to the quota quantity of 10 million a year. All these effects of a quota are identical to the effects of a tariff set at $2 per T-shirt, as you can check in Figure 9.6

(b) .

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US SUS + quota

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Winners, Losers, and the Social Loss from an Import Quota