Quotas redistribute consumer surplus to domestic and foreign firms.

Question

Quizplus · Accepted Answer

Quotas limit the quantity of goods that can be imported, thereby reducing the supply of these goods in the domestic market. This can lead to higher prices, which reduces consumer surplus (the difference between what consumers are willing to pay and what they actually pay). The higher prices and limited competition can increase profits for both domestic producers, who face less competition, and foreign firms that are able to sell their limited quota at the higher price, effectively redistributing consumer surplus to these firms.

Quotas Redistribute Consumer Surplus to Domestic and Foreign Firms