A ban on imports, a tariff, or a quota raise the price to domestic consumers creates a deadweight loss. This loss is composed of

Question

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The deadweight loss from a ban on imports, tariff, or quota is composed of consumption distortion loss (which arises because domestic consumers have to pay a higher price than they would in a free market), and production distortion loss (which arises because domestic producers may artificially increase output, causing inefficiencies and a misallocation of resources). Option A is incorrect because it does not include any loss associated with consumption distortion. Option B is incorrect because it includes unrecognizable terms. Option D is incorrect because it includes irrelevant terms.

A Ban on Imports, a Tariff, or a Quota Raise