A government can impose an import quota or an equivalent tariff that achieves the same impact on trade. What is the key difference in the welfare outcomes of these two policy options?
A) The domestic quantity supplied is larger under the tariff policy.
B) The domestic price is higher under the tariff policy.
C) The domestic price is lower under the tariff policy.
D) The government captures some of the profits from foreign suppliers through the tariff revenue.

Question

Quizplus · Accepted Answer

The key difference between an import quota and an equivalent tariff is that with a tariff, the government collects revenue on the imported goods. In contrast, an import quota restricts the quantity of goods that can be imported without directly generating revenue for the government.

A Government Can Impose an Import Quota or an Equivalent