When a country that imports a particular good imposes an import quota on that good,
A)consumer surplus increases and total surplus increases in the market for that good.
B)consumer surplus increases and total surplus decreases in the market for that good.
C)consumer surplus decreases and total surplus increases in the market for that good.
D)consumer surplus decreases and total surplus decreases in the market for that good.

Question

Quizplus · Accepted Answer

When a country imposes an import quota on a particular good, the quantity of the good supplied to the market reduces. This decrease in supply causes the price of the good to rise, which results in a decrease in the consumer surplus. As the market supply and demand has not reached an equilibrium and the production cost of the good remains same, producers benefit from this policy, as it generally allows them to receive a higher price. However, the decrease in consumer surplus is greater than the increase in producer surplus, resulting in a decrease in total surplus. Hence, option D is the right answer.

When a Country That Imports a Particular Good Imposes an Import