Figure 33-2 The Deadweight Loss of an Import Quota
Import Quotas
The second type of protectionist policy directly restricts the quantity of
imports of a specific product. A common example is the import quota
by which the importing country sets a maximum quantity of some
product that may be imported each year.
Figure 33-2 shows that a quantity restriction and a tariff have similar
effects on domestic consumers and producers—they both raise domestic
prices, increase domestic production, and reduce domestic consumption.
But a direct quantity restriction is actually worse than a tariff for the
importing country because the effect of the quantity restriction is to raise
the price received by the foreign suppliers of the good. In contrast, a tariff
leaves the foreign suppliers’ price unchanged and instead generates tariff
revenue for the government of the importing country.