Restrictions on Free Trade
Tariffs
A tariff is a tax on imported goods, sometimes called an import duty or customs duty.
They can be used by governments to raise revenue for government spending.
Original imports: Q1 to Q4.
New imports: Q2 to Q3.
Original domestic production: O to Q1.
New domestic production: O to Q2.
Price
Sdome
stic
P Swith
2 tariff
P Swor
1 ld
D
O Q Q Q Q Quantity
1 2 3 4
Quotas
A quota is a physical limit on the quantity of a good imported.
As a quota is introduced, domestic production increases from S domestic to Sdom+quota as price of
domestic goods increase from P1 (price at Sworld) to P2.
The size of the quota to fulfill is the area: Q1Q3P1.
Original imports: Q1 to Q4.
New imports: Q2 to Q3.
Original domestic production: O to Q1.
New domestic production: O to Q2.
Price
Sdome
stic
Sdom+q
uota
P
Tariffs
A tariff is a tax on imported goods, sometimes called an import duty or customs duty.
They can be used by governments to raise revenue for government spending.
Original imports: Q1 to Q4.
New imports: Q2 to Q3.
Original domestic production: O to Q1.
New domestic production: O to Q2.
Price
Sdome
stic
P Swith
2 tariff
P Swor
1 ld
D
O Q Q Q Q Quantity
1 2 3 4
Quotas
A quota is a physical limit on the quantity of a good imported.
As a quota is introduced, domestic production increases from S domestic to Sdom+quota as price of
domestic goods increase from P1 (price at Sworld) to P2.
The size of the quota to fulfill is the area: Q1Q3P1.
Original imports: Q1 to Q4.
New imports: Q2 to Q3.
Original domestic production: O to Q1.
New domestic production: O to Q2.
Price
Sdome
stic
Sdom+q
uota
P
