Which of the following statements about import quotas is true?
A) Voluntary quotas established by the exporting country reduce the importing country's deadweight loss from the trade restriction.
B) An import quota reduces the price to the domestic consumers.
C) An import quota increases the welfare of domestic producers.
D) Import quotas are preferred to tariffs because they raise more revenue for the imposing government.

Question

Quizplus · Accepted Answer

An import quota restricts the amount of a foreign product that can be brought into the domestic market, leading to a decrease in supply and an increase in price, benefiting domestic producers. The deadweight loss is not reduced by voluntary quotas established by the exporting country, and import quotas do not necessarily reduce the price to domestic consumers. Tariffs are generally preferred to quotas for revenue generation as they allow for more flexibility in adjusting the tax rate.

Which of the Following Statements About Import Quotas Is True