P/ton
S
$600 A
$400 B
C
D
40 52
? Imported steel
millions
If home gov't imposes quota limiting
imported steel to max of 40
million tons
The diagram shows the outcome for the imported steel market when there is no government restrictions:
equilibrium P = $400 and Q = 52 million tons of imported steel. It also shows the market outcome if the
home government imposes at quota which caps imported steel at a max of 40 million tons: new outcome will
be P rises to $600 for buyers of imported steel and Q falls to 40 million tons.
At the no government restrictions equilibrium (P=$400, Q = 52), the total surplus (CS+PS) =
area C+E
area A+B+D
area A+B+C+D+E
area A+B+C