Sendara produces cotton fabric domestically and can also import unlimited quantities of fabric from Palvia at a fixed world price of $3 per metre. The table below shows Sendara's domestic demand and domestic supply schedules for cotton fabric at different prices. Price ($ per me…

Answer: ((a)) 50 million metres, since quantity demanded at $3 (80 million metres) minus domestic quantity supplied at $3 (30 million metres) equals the quantity that must be imported to satisfy the remaining demand. ((b)) New equilibrium price = $4 per metre, the price at which quantity demanded (65 million metres) equals domestic supply plus the quota (45 million metres plus the 20 million metre quota, also 65 million metres). Domestic producers supply 45 million metres at this price. ((c)) The total quantity bought by consumers falls from 80 million metres (at the $3 world price, before the quota) to 65 million metres (at the $4 price, after the quota), a decrease of 15 million metres. ((d)) Domestic producers sell a larger quantity, 45 million metres instead of 30 million metres, at a higher price, $4 per metre instead of $3 per metre, so their total revenue rises substantially as a result of the quota.. Part (a): Imports before the quota At the world price of $3 per metre, Palvia is willing to supply Sendara with any quantity of fabric, so the market clears at this price: consumers buy the full quantity demanded, and any gap between what…

IGCSE Economics 0455: The Market Effect of an Import Quota

Price ($ per metre)	Quantity demanded (million metres)	Quantity supplied by Sendara's producers (million metres)
2	100	10
3	80	30
4	65	45
5	50	60
6	35	75

Price ($ per metre)

Quantity demanded (million metres)

Quantity supplied by Sendara's producers (million metres)

100

Part (a): Imports before the quota

At the world price of $3 per metre, Palvia is willing to supply Sendara with any quantity of fabric, so the market clears at this price: consumers buy the full quantity demanded, and any gap between what they demand and what Sendara’s own producers supply is filled by imports.

From the table at a price of $3:

Quantity demanded: 80 million metres
Quantity supplied by Sendara’s producers: 30 million metres

$80 - 30 = 50$

Sendara imports $\boxed{50}$ million metres of fabric from Palvia before the quota.

Part (b): The new equilibrium under the quota

Once the quota limits imports to exactly 20 million metres, the total quantity available on Sendara’s market at any price becomes domestic supply at that price plus 20 million metres. The new equilibrium price is the price at which quantity demanded equals this total available quantity.

Checking each row of the table, adding the 20 million metre quota to domestic supply:

Price	Quantity demanded	Domestic supply + quota (20)
$2	100	10 + 20 = 30
$3	80	30 + 20 = 50
$4	65	45 + 20 = 65
$5	50	60 + 20 = 80

At every price below $4, quantity demanded exceeds the total quantity available, so buyers bid the price up. At $4, quantity demanded (65 million metres) exactly equals domestic supply plus the quota (65 million metres), so this is the new equilibrium price.

The new equilibrium market price is $4 per metre, and Sendara’s domestic producers supply $\boxed{45}$ million metres at this price.

Part (c): Change in the quantity bought by consumers

Before the quota, at the $3 world price, consumers bought 80 million metres in total (30 million metres from domestic producers plus 50 million metres imported). After the quota, at the new $4 price, consumers buy 65 million metres in total (45 million metres from domestic producers plus the 20 million metre quota).

$65 - 80 = -15$

The quantity of fabric bought by consumers in Sendara falls by $\boxed{15}$ million metres as a result of the quota.

Part (d): Benefit to Sendara’s domestic producers

Before the quota, domestic producers sold 30 million metres at $3 per metre. After the quota restricts the cheaper Palvian imports, the market price rises to $4 per metre and domestic producers expand their own output along their supply schedule to 45 million metres. Producers therefore sell a larger quantity at a higher price, so their total revenue rises from $30 \times 3 = 90$ ($90 million) to $45 \times 4 = 180$ ($180 million). A clear gain to Sendara’s domestic fabric industry, even though it comes at the cost of a smaller, more expensive market for consumers.

Final answers

(a) Imports before the quota $= \boxed{50}$ million metres.
(b) New equilibrium price $=$ $4 per metre; domestic supply at that price $= \boxed{45}$ million metres.
(c) Quantity bought by consumers falls by $\boxed{15}$ million metres (80 to 65 million metres).
(d) Domestic producers sell more (30 to 45 million metres) at a higher price ($3 to $4), raising their total revenue from $90 million to $180 million.