Suppose that: (1) the United States has a comparative advantage in producing chemicals; (2) Costa Rica has a comparative advantage in producing sugar, and (3) the United States imposes a quota on its imports of Costa Rican sugar. Now suppose that the United States eliminates its import quotas on Costa Rican sugar. Which of the following is MOST likely to occur for the United States?
A) Consumer surplus for American consumers of sugar products will fall.
B) Producer surplus for American sugar producers will rise.
C) Consumer surplus for American consumers of sugar products will rise.
D) Tariff revenues for the U.S. government will rise.

Question

Quizplus · Accepted Answer

By eliminating the quota on Costa Rican sugar, the United States will have access to cheaper sugar from Costa Rica, leading to a decrease in the price of sugar products for American consumers. This decrease in price will increase the consumer surplus for American consumers of sugar products, as they will be able to purchase more sugar products for the same amount of money. Additionally, since the United States does not have a comparative advantage in producing sugar, eliminating the quotas will not have a significant impact on American sugar producers' profits. Therefore, B is not the best choice. Tariff revenues for the U.S. government will not rise because the quota was eliminated, so D is not the best choice.

Suppose That: (1) the United States Has a Comparative Advantage