If an import-competing firm is imperfectly competitive, than under free trade an import quota will ________ domestic market price, ________ producer surplus, ________ consumer surplus, ________ government revenue, and ________ overall domestic national welfare.
A) decrease; decrease; increase; decrease; have no effect on
B) increase; have no effect on; decrease; increase; decrease
C) have no effect on; have no effect on; decrease; increase; decrease
D) increase; increase; decrease; have no effect on; decrease
E) decrease; increase; decrease; increase; decrease

Question

Quizplus · Accepted Answer

An import quota limits the quantity of goods that can be imported, which typically reduces the supply of the imported good in the domestic market. This leads to an increase in the domestic market price. Producers benefit from higher prices, increasing producer surplus. However, consumers face higher prices, which decreases consumer surplus. Since the quota does not directly generate government revenue like a tariff would, government revenue remains unaffected. The overall effect on domestic national welfare is negative due to the loss in consumer surplus and the potential for inefficient allocation of resources.

If an Import-Competing Firm Is Imperfectly Competitive, Than Under Free