The effect of an import quota on the domestic market is to shift the:
a. demand curve to the right by the amount of the quota.
b. demand curve to the left by the amount of the quota.
c. supply curve to the right by the amount of the quota.
d. supply curve to the left by the amount of the quota.
e. consumers' marginal utility curves if they prefer foreign goods to domestic goods.
Question 2
Suppose the Swiss government subsidized its watch-making industry, enabling Swiss producers to undersell foreign watch producers. The law of comparative advantage indicates that watch-importing nations would best take advantage of the Swiss subsidization policy by
a. setting a tariff high enough to just offset the subsidy granted to the Swiss watch-making industry.
b. setting a declining quota on the import of Swiss watches such that the nation's domestic watch-making industry would continue to grow at the same rate as the rest of the economy.
c. setting a tariff such that the prices of Swiss and domestic watches to the consumer are equal.
d. gladly accepting the subsidy of the Swiss government, making the appropriate adjustment for the resources temporarily displaced from the domestic watch-making industry.
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