In response to an import quota
A) Exports increase more than imports.
B) Imports increase more than exports.
C) Imports and exports are unaffected, but the government collects revenues.
D) Imports and exports are both reduced but net exports are unchanged.

Question

Quizplus · Accepted Answer

An import quota is applied in order to restrict the amount of goods that are imported into a country. As a result, imports will decrease. However, the quota will also restrict the amount of goods that can be exported to the country imposing the quota. Therefore, both imports and exports will be reduced, but the net effect on exports depends on the elasticity of demand for the good being traded. If the demand is relatively inelastic, the decrease in quantity of imports will be proportionally greater than the decrease in quantity of exports, resulting in an increase in net exports. If the demand is relatively elastic, the decrease in quantity of imports will be proportionally smaller than the decrease in quantity of exports, resulting in a decrease in net exports.

In Response to an Import Quota