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A-Level Economics · Import quota diagram question

Why does domestic supply rise after the quota is imposed?

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The answer

The higher price draws domestic firms in — an EXTENSION of supply along Sd, from A to G. Domestic producers see a much better market: most of the imports are banned, price rises to Pq, and supply extends along Sd from A (2 units) to G (4 units). The chain is: quota restricts world supply → price rises to Pq → domestic firms extend supply along Sd from A to G → more domestic output, and because labour is a derived demand, more domestic jobs. The curve that shifts is Sd + quota; the domestic supply curve itself never moves. Write 'extension of supply', not 'supply increases'.

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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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