An import quota
A)is preferable to a tariff since an import quota does not create a deadweight loss.
B)is a tax on imported goods.
C)reduces the welfare of domestic consumers.
D)reduces the welfare of domestic producers.

Question

Quizplus · Accepted Answer

An import quota limits the amount of a good that can be imported, which leads to higher prices and reduced competition in the domestic market. This reduces the welfare of domestic consumers as they have to pay higher prices for the same product. However, it may benefit domestic producers who face less competition and can charge higher prices. Import quotas can also lead to inefficiencies, such as rent-seeking behavior by parties seeking to obtain the limited import licenses or permits.

An Import Quota