Tariffs
The implementation of a tariff increases the price from Pw to P+t. At the higher price level, more domestic producers are able to supply the good and hence domestic production increases from Q1 to Q3. At the higher price level, quantity demanded falls from Q2 to Q4. This reduces the demand for imported goods, so the total level of imports falls to Q4-Q3. The government will also receive tariff revenue equal to (Q4-Q3)*(P+t – Pw).
FOR EXAMPLE…
The US imposed tariffs of 25% on imported steel and 10% on imported aluminum in 2018, citing national security concerns and a desire to support domestic steel and aluminum producers. The tariffs made imported steel and aluminum more expensive for American consumers, reducing their demand for these imports and encouraging them to purchase from domestic producers instead.
Quotas
When an import quota is imposed on a market, the level of imports is restricted to Q2-Q1.1. This creates scarcity in the market as there is now excess demand. This incentivises domestic producers to join the market, shown by a rightward shift of the supply curve. This also has the effect of creating a new equilibrium price level of P+quota. Domestic producers will now provide Q3-Q2 in addition to Q1. Hence, the quota reduced imports and stimulates domestic production.
FOR EXAMPLE…
The US government sets a limit on the amount of sugar that can be imported from certain countries each year. This is done to protect domestic sugar producers from foreign competition. The import quota is enforced through a licensing system, which requires importers to apply for a license before they can import sugar. Once the quota is reached, no more sugar can be imported from those countries until the next year