5 Steps to a 5 AP Microeconomics, 2014-2015 Edition

Quotas

Quotas work in much the same way as a tariff. An import quotais a maximum amount of

a good that can be imported into the domestic market. With a quota, the government only

allows two million tons to be imported. Figure 7.18 looks much like Figure 7.17, only

without revenue collected by government. So the impact of the quota, with the exception

of the revenue, is the same: higher consumer price and inefficient resource allocation.

92 á Step 4. Review the Knowledge You Need to Score High

Sd

Dd

Quantity of Steel

(millions of tons)

$ per ton

Pd = $100

8

Pt = $90

$120

10 12

imports = 2

911

Pw = $80

deadweight loss

Figure 7.17

Sd

Dd

Quantity of Steel

(millions of tons)

$ per ton

Pd = $100

8

Pq = $90

$120

10 12

import quota = 2

911

Pw = $80

Figure 7.18

Tariffs and quotas share many of the same economic effects.

“It is important

to know the dif-

ferences between

tariffs and

quotas.”

—Lucas, AP

Student

• Both hurt consumers with artificially high prices and lower consumer surplus.


• Both protect inefficient domestic producers at the expense of efficient foreign firms,
  creating deadweight loss.


• Both reallocate economic resources toward inefficient producers.


• Tariffs collect revenue for the government, while quotas do not.

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