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1 months ago
Draw a graph to illustrate the effect on the market of an import restriction. Show how price and quantity in the market are affected. What happens to consumer and producer surplus?
Textbook 

Survey of Economics: Principles, Applications and Tools


Edition: 6th
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Posts: 254
1 months ago
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As shown in the graph, total supply includes production by foreign and domestic suppliers, and the market is in equilibrium at P1 and Q1. When an import restriction is imposed, the supply decreases to only the production by domestic suppliers. As a result the price increases to P2 and the quantity decreases to Q2. Consumer surplus is decreased, and the ban eliminates the producer surplus of foreign suppliers. A producer surplus for domestic suppliers is generated, thus they gain at the expense of domestic consumers.
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