# (Economics) two simple questions that confused me

1. A quota on an imported good below the market-clearing quantity will most likely lead to which of the following effects?
A The supply curve shifts upward.
B The demand curve shifts upward.
C Some of the buyer’s surplus transfers to the seller.

The correct answer is C but according to the graph I draw all three answers are correct?

1. 12 Which of the following statements best characterizes the market mechanism for attaining equilibrium?
A Excess supply causes prices to fall.
B Excess demand causes prices to fall.
C The demand and supply curves shift to reach equilibrium

The correct answer is A but i think C is also correct?

Can anyone help here? Many thanks!!

For your first question, refer to page 354 of Book 2, and you will see in the graph that the supply and demand does not shift.

With the imposition of quota, there will be a loss in consumer surplus and gain in producer surplus.

For your second question, market mechanism will cause prices to change to clear the excess demand/supply.

For excess demand, market mechanism is for price to increase.

For excess supply, market mechanism is for price to decrease.

The demand and supply curve does not shift. To shift the curves, it has to be due to change in factors other than price (e.g. change in income and price of other goods will cause demand curve to shift; and change in wages or raw materials will cause supply curve to shift).

Hi Fino!

Thank you so much for taking the time to answer my questions in detail! I wouldn’t have been able to resolve them without your help!

I’m all clear about the second question now, but regarding the first one, I’ve checked the graph on page 354, the price P* is the assumed price (free market price) before the quota is imposed. I wonder why it’s not the equilibrium price, but a price below that? My Answer was based on the assumption that P* was the equilibrium price, so when a quota was imposed, the price will go up…