A quota generates a protective effect just like a tariff. Using the graph, calculate the “equivalent import tariff” that would produce the same result as an import quota of 200 units.

Question

BlackTom AI · Accepted Answer

The prompt asks us to determine the equivalent import tariff that would produce the same effect as an import quota of 200 units, using a graph for reference.

First, I would restate what the problem is asking in plain terms: we need to translate a quantity restriction (quota) into a tariff that causes the same drop in imports and similar price effects, so that the welfare and price outcomes align between the two instruments.

Key concept: an import quota and an import tariff both restrict imports and raise the domestic price of the good. The quota creates scarcity by limiting quantity; the tariff creates a price wedge between domestic price and world price. The “equivalent tariff” is the tariff level that, given the same world price and the same demand/supply responses, leads to the same quantity of imports (200 units in this case) and the same price received by domestic sellers and paid by domestic buyers as the quota would.

To compute this from a graph, you would typically follow these steps:
1) Identify the baseline world price (Pw) and the domestic price under the quota, which together determine the import quantity with the quota: imports = quantity demanded at domestic price minus quantity supplied domestically at that price. The quota reduces imports to 200 units. 
2) Determine the domestic price level under the quota from the graph: the quota raises the domestic price to some level Pq due to restricted supply available to domestic buyers. The area under price and quantity on the graph helps you visualize the quota rents and the distribution between consumers, producers, and the government (if any).
3) Translate the quota into a tariff: a tariff raises the domestic price by the tariff amount, so the domestic price with a tariff (Pt) equals Pw plus Tariff. The quantity imported under the tariff is the quantity demanded at Pt minus domestic supply at Pt. You adjust the tariff until the resulting imports equal 200 units.
4) Once you find the tariff that leads to 200 imports on the graph, that tariff amount is the equivalent tariff. It’s effectively the price wedge that achieves the same market outcome as the quota—same imports, same price signals, and similar welfare implications for consumers and producers (ignoring small differences due to rent allocation).

Why a specific numeric result like $3 would be obtained: on a given graph with specific slopes of the supply and demand curves (or supply and demand functions), the shift in price required to reduce imports to 200 units is unique. If the graph shows that with a tariff of $3 the domestic price rises sufficiently to cut imports to 200, then $3 is the equivalent tariff in that setup. Conversely, any other tariff would yield a different import quantity or price, so would not be equivalent.

Potential sources of confusion or mistakes to watch for:
- Misreading whether the quota rent is captured by producers, the government, or both can lead to incorrect interpretation of the welfare effects, though the tariff equivalence focuses on price and quantity effects.
- Forgetting that the tariff’s effect depends on the world price; if Pw changes or if elasticities differ, the equivalent tariff changes as well.
- Assuming that all the rents from the quota transfer identically to tariff revenue; in practice, distribution between consumers and producers can differ depending on incidence and market structure.

Because the prompt provides an answer label of $3 but does not include the list of answer options, there are no alternative choices to compare here. If there were multiple choice options, the correct option would be determined by which tariff amount yields the same imports (200 units) and the same price wedge as the quota on the supplied graph, using the steps above to validate each option against the graph data.

A quota generates a protective effect just like a tariff. Using the graph, calculate the “equivalent import tariff” that would produce the same result as an import quota of 200 units.

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