Question

Assume that the United States imposes an import quota on Scottish wool suits. Relative to the equilibrium price that would prevail in the absence of quotas, the equilibrium price of suits in the United States will most likely _____ and the equilibrium price of suits in Scotland will most likely _____.

a) remain the same; decrease
b) remain the same; increase
c) increase; increase
d) increase; decrease

Answer 1

The correct answer is option d.

Step-by-step explanation:

An import quota can be defined as a trade restriction that puts a quantitative limit on the import of a commodity. It is generally imposed by the government to protect domestic producers.

It either puts a physical limit or a limit on the monetary value of goods to be imported.

The imposition of quota on the import of Scottish wool suits will cause the supply to decrease. This will cause the supply curve to shift to the left. The equilibrium price of Scottish wool suits, as a result, will increase and the equilibrium quantity will decrease.