Equilibrium, Quotas, and Bans: UK Apple Market Analysis

This report provides a comprehensive analysis of the UK apple market, beginning with an examination of market equilibrium using supply and demand curves. It then delves into the effects of import quotas, exploring how they impact both domestic and foreign suppliers, and illustrating the shifts in supply curves. The report distinguishes between binding and non-binding quotas, evaluating their respective effects on market prices and quantities. Furthermore, it investigates the government's rationale for imposing import quotas, highlighting their role in protecting domestic industries, reducing competition, and addressing unfair trade practices. The report also contrasts import quotas with import bans, outlining the key differences in their impacts on trade and market dynamics. The analysis incorporates graphical representations to illustrate the concepts and findings, offering a clear understanding of the complex interplay of economic forces within the UK apple market.

Running head: APPLE MARKET OF UNITED KINGDOM
APPLE MARKET OF UNITED KINGDOM
Name of the Student
Name of the University
Author Note

1APPLE MARKET OF UNITED KINGDOM
Table of Contents
Answer 1..........................................................................................................................................2
Answer a......................................................................................................................................2
Answer b......................................................................................................................................3
Answer c......................................................................................................................................7
Answer 2..........................................................................................................................................9
Answer 3........................................................................................................................................11
Difference..................................................................................................................................11
Similarity...................................................................................................................................12
References......................................................................................................................................14

2APPLE MARKET OF UNITED KINGDOM
e
1
Q*
PRICE
P*
Dn
q
Snq
QUANTITY
Answer 1
Answer a
It is assumed that the apples market in United Kingdom (UK) is in equilibrium. The
market is described by the traditional demand curve and the supply curve. Supply of apples is
covered by a combination of the domestic apple production (UK-based suppliers) and foreign
apple production (non-UK-based-suppliers). The entire discussion about the equilibrium market
is done below along with a graphical representation as shown in figure1.
Figure 1: Apple Market Equilibrium
Source: Created by the Author
The above figure (figure1) depicts the equilibrium market for apples in UK. In the diagram,
number of apples (Quantity) is measured along the horizontal axis while the vertical axis
represents the Price of each apple. The demand for the apples in the market is shown by Dnq, the

3APPLE MARKET OF UNITED KINGDOM
demand curve of the UK apple market while the supply is presented by Snq, which is the supply
curve of apples. In economics, market equilibrium is described as a situation where economic
forces like market supply and market demand balance each other. Moreover, the equilibrium
value obtained by the intersection of economic variables does not change in absence of any
external influences (Azevedo and Leshno 2016). In this case of UK apple market, the market
supply curve (Snq) intersects the market demand curve (Dnq) at point e1. The point e1 is the
market equilibrium point because at this point Snq is equivalent to Dnq. The price and the
quantity which correspond to the point of equilibrium are referred to as the equilibrium price and
equilibrium quantity respectively. Hence, in the above diagram, the price and the quantity
corresponding to the equilibrium point e1 are P* and Q* respectively. Therefore P* and Q* are
the equilibrium price and quantity of the apple market of UK respectively.
Answer b
UK government wants to promote the domestic market for apples. For promoting the
domestic market, the government sets quota on apples imports. As a consequence of imposition
of quota, only half of the previously imported apples are permitted to be imported and sold onto
UK market. The three stages of the derivation of the supply curve are illustrated below which
include demonstration of UK-based supply curve, non-UK based supply curve before and after
imposition of quota and total supply curve of UK (SFUK)
i)
The UK government has imposed quota on the import of apples with an aim to increase
the domestic market, so the domestic supply market for apples will increase by the extent of

4APPLE MARKET OF UNITED KINGDOM
SUK2 = SUK1 + quota
e*UK
P*
QUK*
eU
K
QUK
PRICE
P
Dn
q
SUK1
QUANTITY
imposed quota (Kiyota and Okazaki 2013). The UK-based apple supply market condition is
portrayed in the following graph.
Figure 2: Effect of import quota on UK- based Suppliers
Source: Created by the Author
In the figure 2, the domestic apple market demand is shown by the Dnq while the UK-based
supply curve is denoted by SUK. As a result of imposition of quota the domestic supply rises
from SUK1 to SUK2 shifting the supply curve towards right. The equilibrium level moves
from eUK to e*UK thereby reducing the equilibrium price as well as increasing the

5APPLE MARKET OF UNITED KINGDOM
QqF
eqF
P-
Snq
F
enq
F
Qnq
F
PRICE
P*
Dn
q
SqF= SnqF -
quota
QUANTITY
equilibrium quantity. At the new equilibrium level e*UK the equilibrium price and the
equilibrium quantity are P* and QUK* respectively.
ii)
For promoting the domestic apple market the UK government imposes a quota on apples
import which reduces the importation of the apple by half. As a result, the supply curve of
foreign apple shifts to the left reducing the overall quantity supplied and rising the price. The
entire phenomenon is posturized in the graph below
Figure 3: Effect of Imposition of Quota on non-UK-based Suupliers
Source: Created by the Author

6APPLE MARKET OF UNITED KINGDOM
QUK
+QqF
eqF
P-
SFUK2
e*q
F
QUK* +QqF
PRICE
P*
Dn
q
SFUK1
QUANTITY
The graph shows that due to the imposition of quota, supply curve shifts leftward from SnqF
to SqF by the extent of imposed quota, as it decreases the supply of imported apples. The fall in
the supply decreases the quantity of imported apples from QnqF to QqF but increases the
price from P* to P-.
iii)
In the above two cases (i and ii), the effect of import quota on apples, is shown by UK-
based supply and non-UK-based supply curve individually but now the overall effect of the
quota on the total supply curve (SFUK) will be depicted using the figure 4.
Figure 4: Effect of Quota on Total Supply

7APPLE MARKET OF UNITED KINGDOM
Source: Created by the Author
The Previous discussion shows that due to imposition of quota on imported apples, the
quantity of imported apple reduced to QqF. As the import of the apple is reduced, so the
domestic producers will be induced to rise the production in terms of import substitute. This
effect of import quota is known a production effect or protective effect. Hence the domestic
production will increase from QUK to QUK* (as shown in figure 2), henceforth shifting the
total supply curve from SFUK1 to SFUK2. Thus the price reduces from P- to P* and quantity
from QUK* +QqF to QUK* +QqF.
Answer c
In this section, the discussion will be done on the basis of binding and non-binding quota
imposed on the import of apple in UK market, considering two scenarios- Scenario A and
Scenario B.
Scenario A
In the scenario A, the non-binding import quota is considered. When an import quota is imposed
above or at free trade level of import then it is called non-binding import quota (Ikonnikova and
Zwart 2014). The effect of non-binding quota is demonstrated by figure 5. Since the quota is not
binding, the equilibrium quantity (Q) is less than the quota imposed quantity (Q1), so the price P1
is less than the price P-. Since Q<Q1 and P- >P1 so the imposition of non-binding quota does not
have any significant effect on the society and demand of the consumers.

8APPLE MARKET OF UNITED KINGDOM
Q Q
1
P1
P-
PRICE
DL
SUKF
QUANTITY
Figure 5: Non-binding Quota
Source: Created by Author
Senario B
The scenario B illustrates the significance of the binding import quota. An import quota is
regarded as binding import quota when it is set below the free trade level of import (Feenstra
2015). The binding quota is shown by the red colored line vertical line segment in the figure 6.
Due to the imposition of binding quota the quantity falls below the free market equilibrium level
Q. The original equilibrium quantity Q is greater than the quota imposed quantity Q2. Due to the
imposition of binding import quota, the price level is above the equilibrium price level (P-). The
high domestic price due to low level of quantity supplied will affect the economy in terms of
reduced level of consumption.

9APPLE MARKET OF UNITED KINGDOM
QQ
2
P2
P-
PRICE
DH
SUKF
QUANTITY
Figure 6: Binding Quota
Source: Created by the Author
Answer 2
A quota can be defined as a way of restricting trade that is imposed by the government of
a county. An imposed quota limits the monetary value or the quantity of goods that the nation
can import or export during a specific time-period (Blonigen et al. 2013). In this section, the
concern is to find the reason for imposition of import quota by the government. By imposing
import quota, government of one nation restricts the quantity of imports from another nation. The
primary goal of a nation’s government for imposing import quota is to reduce the imports of the
foreign products and to promote the domestic market by increasing the domestic level of
production (Teimoury et al. 2013). As restriction is set on the importation of product quantity so
the price for the foreign imported goods increases. This scenario encourages the domestic

10APPLE MARKET OF UNITED KINGDOM
customers (consumers of the nation) to buy domestic products more than the imported ones.
Thus, import quota is classified as one of the common three foreign trade policies, which are
structured to discourage the imports of foreign goods or the export of domestic products, other
two being the export subsidies and tariffs. Therefore, it can be said that, import quota is a foreign
trade policy generally undertaken by the domestic government with an intention to protect the
domestic production by limiting the foreign competition. In more generalized way, an import
quota is simply an import quantity restriction established on goods, services and activities of the
foreign nation.
The primary aim of placing import quota, a mere legal restriction on the import quantities
of goods and services from foreign sector, by the home country’s government is only to
increment the limit of availability of the imported products in the national economy, therefore
motivating the domestic customers to buy domestic products (Abbassi et al. 2015). Apart from
the above-explained goal for imposition of the import quota on the foreign trade policies along
with other foreign imports can be justified under the following reasons
Rise in Domestic Employment: Since the foreign imported goods are manufactured in the
foreign nations by the foreign labors so reducing imports and enhancing domestic production
increases the domestic employment level too.
Reducing Competition: By limiting the imports manufactured by the foreign labors, receiving
lower wages, lowers the amount of competition level with the domestic products produced by the
highly paid domestic labors.
Infant Industry Protection: When foreign products compete with an entirely young domestic
firm, which is not yet matured and large enough to be benefited from the economies of scale then

11APPLE MARKET OF UNITED KINGDOM
imposition of import quota gives protection to the domestic infant industry while it develops and
matures.
Unfair Foreign Trade Practices: The imported products are sold at low prices in the domestic
country’s economy, as foreign producers get involved in unfair trading practices like dumping
imports at relative prices below cost of production. The import quotas helps to prevent such
unfair practices of foreign producers.
Security to Nation: Imposition of import quota discourages imports of foreign goods and
encourages the domestic production of the goods and services, which are deemed critical towards
the national security of the economy.
Thus, domestic governments impose quota on imports because the import quota is the
most beneficial among all the foreign trade policies, which benefits domestic firms in terms of
high sales, large profit and more income to the resource owners.
Answer 3
In this section, the difference and similarity between impositions of quotas on imported
goods and total ban on imported goods. First the difference between the two will be discussed
followed by the similarity.
Difference
Import quota, as discussed earlier, is a protective government rule for establishing
restriction to the quantity of import of a specific product from foreign countries to the domestic
nation but total ban on imported goods which is also referred to as import embargo is a quite
different concept. A ban on imported goods (import embargo) completely forbids a nation to
import goods from another country (Djuric, Gotz and Glauben 2015). When government of a