The effect of a quota is to
A)increase quantity supplied and lower price.
B)increase quantity supplied and increase price.
C)increase demand for the good and increase price.
D)reduce the quantity supplied and raise price.

Question

Quizplus · Accepted Answer

A quota sets a limit on the amount of a good that can be imported, which reduces the quantity supplied and raises the price. This is because there is now less competition among suppliers, so the remaining suppliers can charge higher prices. Option A is incorrect because a quota reduces the amount of the good available, so quantity supplied decreases, not increases. Option B is incorrect because while quantity supplied may increase in the short run due to higher prices, ultimately the quota will limit imports and reduce the amount of the good available. Option C is incorrect because a quota limits imports, so it does not increase demand for the good.

The Effect of a Quota Is to