Which of the following statements is true?
A) Both quotas and tariffs have direct and immediate effects on domestic prices regardless of the reactions of foreign sellers.
B) Neither quotas nor tariffs have direct or indirect effects on domestic prices unless foreign sellers absorb some of the demand loss.
C) Quotas have direct and immediate effects on domestic prices, but tariffs do not unless foreign sellers choose not to absorb their full value in the pretariff export price.
D) Tariffs have direct and immediate effects on domestic prices, but quotas do not unless foreign sellers choose to absorb their full impact on demand.
E) All of the above are true depending on the elasticities of demand.

Question

Quizplus · Accepted Answer

Quotas directly limit the quantity of goods that can be imported, immediately affecting domestic prices due to the restricted supply. Tariffs, on the other hand, are taxes on imports that can be absorbed by foreign sellers to some extent, meaning their impact on domestic prices might not be immediate unless foreign sellers pass the full cost of the tariff onto consumers.

Which of the Following Statements Is True