Andy produces shorts using imported fabric. The shorts are sold only in the domestic market. The government of Andy decides that in order to increase its revenue it will impose a specific tariff or an equivalent quota on imported fabric. However, once either of these measures is imposed, the government will not switch to the other or change its magnitude. If the government uses a quota, it will collect all the quota rents (revenue). Assuming that a tariff or a quota is inevitable, and that the producers of shorts in Andy expect domestic demand for shorts to decrease in the future, which trade policy would they prefer, a tariff or a quota? Explain. A diagram is recommended. (The world supply of and demand for fabric are not expected to change.)
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