How does protectionism affect the price of the protected good in the domestic market?

In a free market, the equilibrium price and quantity are determined by the intersection of the supply and demand curves. This is the point where the quantity demanded by consumers equals the quantity supplied by producers. When there is no protectionism, foreign goods can enter the domestic market without any barriers, increasing the supply of the product and affecting its price.

Tariffs are taxes on imported goods imposed by the government. When a government imposes a tariff, the cost of imports increases. As a result, producers of the imported good will be more inclined to supply less of the good in the domestic market at each price level. Consequently, the supply curve for the imported good shifts to the left. This leads to a decrease in the supply of the good and an increase in the domestic price, as the equilibrium point now occurs where a higher price and a lower quantity will be exchanged.

Import quotas are limits imposed on the number of units of a particular good that can be brought into the country during a specific time period. When an import quota is put in place, the supply of the good in the domestic market decreases because the quantity of imports is limited. This results in a lower supply curve and a new equilibrium at a higher price level and reduced quantity, similar to the effect of tariffs mentioned earlier.

Subsidies are financial aid provided by the government to domestic producers to make their product more competitive in the market. By providing subsidies, the government effectively lowers the cost of production for the local producers, allowing them to supply more of their goods at each price level. This results in an outward shift of the domestic supply curve. Consequently, the equilibrium price in the market will decrease, and the quantity demanded will increase. In conclusion, protectionist policies such as tariffs and import quotas lead to an increase in the domestic price of the protected good due to reduced supply in the market. On the other hand, subsidies on domestic production lead to a decrease in the domestic price since local producers can supply more of the good at the given price levels.