If a domestic industry lacks the capacity to meet demand, an ________ can raise prices for both the domestically produced and the imported good.

Question

Quizplus · Accepted Answer

The extra profit that producers make when supply is artificially limited by an import quota is referred to as a quota rent. If a domestic industry lacks the capacity to meet demand, an import quota can raise prices for both the domestically produced and the imported good. This happened in the U.S. sugar industry, in which a tariff rate quota system has long limited the amount foreign producers can sell in the U.S. market. According to one study, import quotas have caused the price of sugar in the United States to be as much as 40 percent greater than the world price.

If a Domestic Industry Lacks the Capacity to Meet Demand