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A-Level Economics · Import quota diagram question

Who receives the higher price Pq on the units that still come in under the quota?

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The diagram

The answer

The foreign suppliers who get the quota places — the government collects nothing. Under a tariff foreign producers must hand the tax to the government. Under a quota there is no tax to hand over — the higher price stays with whoever gets to import. This is the sharpest contrast between the two policies. A tariff gives the government revenue, because foreign producers hand the tax over. A quota gives the government nothing: the units allowed in simply sell at the higher price Pq. Domestic producers capture Pq on everything they make as well — which is why domestic industry lobbies hard for quotas.

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This is one of 6 questions on the import quota diagram — every corner lettered, every wrong answer diagnosed.

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