$5.$ Import quotas $($Show graph and show work$)$

The following graph shows the U$.$S$.$ domestic market for jackets.

Use this graph to answer the questions that follow.

Suppose now that the United States trades with China but neither country can affect the world price of jackets. Initially, the United States does not

use any trade barriers $($neither tariffs nor quotas$)$ on jackets imported from China. Assume that China has a comparative advantage in producing

jackets and charges the world price of $$8$ per jacket.

On the graph, use the grey line $($star symbol$)$ to indicate the world price of jackets.

At the world price of $$8$ per jacket, U$.$S$.$ consumers will demand

million jackets, U$.$S$.$ manufacturers will supply

million jackets,

and the U$.$S$.$ will import

million jackets from China.

Suppose now that the United States imposes a quota on imports of jackets from China, which limits imports of Chinese jackets to $0$ million. $($Hint: The

original domestic supply curve represents domestic production only.$)$

On the previous graph, use the purple line $($diamond symbol$)$ to indicate the new U$.$S$.$ price under the quota.

Under the quota, the price of jackets is

per jacket, U$.$S$.$ producers supply

million jackets, and U$.$S$.$ consumers

demand

million jackets.

Compared to conditions under free trade, U$.$S$.$ manufacturers sell

jackets and receive

$\_$price after the imposition of the

jacket quota, while U$.$S$.$ consumers buy

jackets and pay

price after the imposition of the jacket quota.

Supporters of the jacket quota over free trade argue that the trade restriction will save jobs in the United States. What are the potential pitfalls of

such an argument? Check all that apply.

China may retaliate, imposing restrictions on exports from the United States, thereby generating unemployment in U$.$S$.$ export industries.

The costs to domestic jacket consumers may outweigh the benefits of jobs saved in the jacket industry.

Consumers will likely divert large amounts of scarce resources toward lobbying for the removal of the quota.

Trade restrictions simply reshuffle jobs by increasing employment in the protected industry and reducing employment in other industries.