All of the following are true about quotas EXCEPT which option?
Choose 1 answer:
(A) Consumer surplus decreases when a quota is imposed.
(B) They generate tax revenue.
(c) Total welfare is lower with quotas than with free trade.
(D) They cause deadweight loss.
(E) Producer surplus for license holders increases when a quota is imposed.

Question

Accepted Answer

∻Solution∻ ‖ a ⋮ Quotas and Consumer Surplus: Quotas, which are limits on the quantity of goods that can be imported, typically reduce consumer surplus because they lead to higher prices and reduced availability of goods. ‖ ‖ b ⋮ Quotas and Tax Revenue: Quotas do not generate tax revenue because they are quantitative restrictions, not taxes. Any revenue generated from selling the import licenses goes to the license holders, not the government. ‖ ‖ c ⋮ Quotas and Total Welfare: Quotas generally reduce total welfare by creating a deadweight loss due to the reduction in trade and market inefficiencies. ‖ ‖ d ⋮ Quotas and Deadweight Loss: The imposition of quotas leads to a deadweight loss because they prevent the market from reaching the efficient level of trade, causing losses in both consumer and producer surplus that are not offset by any gains elsewhere. ‖ ‖ e ⋮ Quotas and Producer Surplus: Producer surplus for license holders increases when a quota is imposed because the restricted supply leads to higher prices, which benefits domestic producers who can sell at these higher prices. ‖ ∻Answer∻ ⚹ (B) They generate tax revenue. ⚹ ∻Key Concept∻ ⚹ Quotas vs. Taxes ⚹ ∻Explanation∻ ⚹ Quotas limit the quantity of a good that can be imported and do not generate tax revenue for the government, unlike tariffs or taxes which do.◊What are the potential economic consequences of imposing quotas on trade?⍭ Generate me a similar question◊⚹

Sia