Which of the following is true of a quota:

Question

Quizplus · Accepted Answer

A quota is a quantitative restriction on imports, meaning that it limits the amount of a specific good that can be imported into a country. This can be done for various reasons, such as protecting domestic industries, controlling the balance of payments, or ensuring market stability. Unlike a tariff, which is a tax on imports that increases the price of the imported good, a quota does not necessarily affect the price of the imported good. However, it can cause the world price of the good to rise if the quota reduces the overall supply and increases demand. Therefore, statement B is incorrect. Statement A is also false because a quota can actually lead to higher domestic prices if demand exceeds the limited supply. Statement D is also incorrect because the efficiency of a quota versus a tariff depends on various factors such as the elasticity of demand and supply, the level of production costs, and market conditions.

Which of the Following Is True of a Quota