(Figure: The Soybean Market) Because there is no government revenue as a result of the quota, one of the parties in the trade transaction makes a "return" equal to lost government revenue (P - MC) · Q_imports. This is called: A) a windfall profit. B) a quota rent. C) gains from trade. D) unearned income.

Question

Quizplus · Accepted Answer

The formula given in the question is for calculating the quota rent, which is the extra profit earned by domestic producers or importers as a result of the quota that limits competition from foreign suppliers. It is not a windfall profit, gains from trade, or unearned income.

(Figure: the Soybean Market) Because There Is No Government Revenue