An increase in domestic demand for a product protected by a quota results in an increase in producer surplus for domestic firms,while for a tariff it would result in more imports.

Question

Quizplus · Accepted Answer

With a quota, the domestic producers are already protected from increased imports, so an increase in domestic demand would lead to an increase in the price of the product and thus an increase in producer surplus. On the other hand, with a tariff, an increase in domestic demand would result in more imports, as the tariff would make the imported product more expensive.

An Increase in Domestic Demand for a Product Protected by a Quota