Which of the following is true of a quota in a competitive market?
A)A quota increases total surplus as the quantity produced and consumed in the domestic market increases.
B)A quota is a trade policy used to promote greater efficiency in production within world markets.
C)A quota reduces the welfare of domestic consumers more than it increases the welfare of producers.
D)A quota is imposed in a competitive market to increase total world output of goods and services.

Question

Quizplus · Accepted Answer

A quota restricts the quantity of goods that can be imported, leading to a decrease in domestic supply and an increase in domestic price. As a result, domestic consumers experience a reduction in welfare due to the higher price, while domestic producers experience an increase in welfare due to the reduced competition. Therefore, a quota generally reduces the welfare of domestic consumers more than it increases the welfare of producers. Choices A, B, and D are incorrect because they do not accurately describe the purpose or impact of a quota in a competitive market.

Which of the Following Is True of a Quota in a Competitive