An import quota tends to reduce the overall welfare of the importing nation by an amount equal to the protective effect, consumption effect, and the portion of the revenue effect that is captured by the domestic government.

Question

Quizplus · Accepted Answer

An import quota tends to reduce the overall welfare of the importing nation, but the portion of the revenue effect captured by the domestic government (in the form of tariffs or taxes) does not reduce welfare; instead, it represents a transfer within the economy. The welfare loss is primarily due to the protective effect and consumption effect, along with any inefficiencies or distortions created in the market.

An Import Quota Tends to Reduce the Overall Welfare of the Importing