How will an export quota imposed by a large exporting country affect the country's welfare?
A) It will cause an increase in the country's welfare if the terms-of-trade gains exceed consumption and production deadweight losses.
B) It will always cause a decrease in the country's welfare.
C) It will always cause an increase in the country's welfare.
D) It will not change the country's welfare.

Question

Quizplus · Accepted Answer

An export quota imposed by a large exporting country may cause the terms-of-trade to improve, increasing the price of the exported goods. This increase in price will result in a welfare gain for the exporting country if the gains from the terms-of-trade improvement exceed the consumption and production deadweight losses. Therefore, the answer is A.

How Will an Export Quota Imposed by a Large Exporting