Use the following to answer questions:
Figure: Foreign Trade Market
-Which, if any, of the following conditions for efficient market functioning do tariffs and quotas violate?
I. demanders with the highest willingness to pay purchase the supply of goods
II. producers with the lowest costs produce and sell the supply of goods
III. the sum of consumer and producer surplus is maximized
A) I only
B) II and III only
C) I, II, and III
D) III only

Question

Use the following to answer questions:
Figure: Foreign Trade Market 
-Which, if any, of the following conditions for efficient market functioning do tariffs and quotas violate?
I. demanders with the highest willingness to pay purchase the supply of goods
II. producers with the lowest costs produce and sell the supply of goods
III. the sum of consumer and producer surplus is maximized
A) I only 
B) II and III only 
C) I, II, and III 
D) III only

Quizplus · Accepted Answer

Tariffs and quotas violate conditions II and III because they disrupt the natural market forces that allow producers with the lowest costs to sell their goods and prevent the maximization of consumer and producer surplus. However, they do not necessarily violate condition I of allowing demanders with the highest willingness to pay to purchase the supply of goods.

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