A Level Economics (9708)•9708/11/M/J/21

Explanation
Import Quota Effects in a Small Country
Steps:
- An import quota limits the quantity of tractors entering the country, reducing total supply.
- As a small country, the quota does not influence the world market price, so the price of imported tractors remains unchanged.
- The restricted imports cause the domestic market price to rise due to scarcity.
- Higher domestic prices incentivize local producers to increase tractor output.
Why D is correct:
- In a small open economy, quotas leave the import (world) price unaffected while elevating domestic prices, boosting domestic production per the law of supply.
Why the others are wrong:
- A: Neither price nor output falls; domestic output rises.
- B: Domestic output increases due to higher prices.
- C: Import price stays the same, not increases; output rises.
Final answer: D
Topic: Protectionism
Practice more A Level Economics (9708) questions on mMCQ.me