Suppose an import-competing firm is imperfectly competitive. Replacement of an export tariff with an import quota that yields the same level of imports will ________ market price, ________ producer surplus, ________ consumer surplus, ________ government revenue, and ________ overall domestic national welfare.
A) have no effect on; have no effect on; have no effect on; decrease; decrease
B) increase; increase; increase; decrease; have an ambiguous effect on
C) decrease; decrease; increase; decrease; increase
D) increase; increase; decrease; decrease; decrease
E) increase; have no effect on; decrease; decrease; increase

Question

Quizplus · Accepted Answer

Replacing an export tariff with an import quota that yields the same level of imports generally increases the market price because the quota restricts supply. This increase in price benefits producers (increasing producer surplus) but harms consumers (decreasing consumer surplus). Unlike tariffs, quotas do not generate government revenue, thus government revenue decreases. The overall effect on domestic national welfare is typically negative due to the inefficiencies introduced by the quota, such as the deadweight loss associated with decreased consumer surplus and the lack of government revenue.

Suppose an Import-Competing Firm Is Imperfectly Competitive