Assume all costs and benefits are reflected in the supply and demand curves in a market, and neither curve is perfectly elastic or inelastic.

What happens when a quota is placed on a market in an importing country?

Choose 1 answer:
(A) Consumer surplus and producer surplus both increase and deadweight loss is eliminated.
(B) Consumer surplus increases, producer surplus increases, and deadweight loss exists.
(C) Consumer surplus decreases, producer surplus increases, and total surplus decreases.

D Consumer surplus and producer surplus both decrease and deadweight loss is eliminated.
(E) Consumer surplus increases, producer surplus increases, deadweight loss exists, and tax revenue is generated.

Question

Assume all costs and benefits are reflected in the supply and demand curves in a market, and neither curve is perfectly elastic or inelastic.

What happens when a quota is placed on a market in an importing country?

Choose 1 answer:
(A) Consumer surplus and producer surplus both increase and deadweight loss is eliminated.
(B) Consumer surplus increases, producer surplus increases, and deadweight loss exists.
(C) Consumer surplus decreases, producer surplus increases, and total surplus decreases.

D Consumer surplus and producer surplus both decrease and deadweight loss is eliminated.
(E) Consumer surplus increases, producer surplus increases, deadweight loss exists, and tax revenue is generated.

Accepted Answer

∻Solution∻ ‖ a ⋮ Quota Impact: When a quota is placed on a market in an importing country, it restricts the quantity of goods that can be imported. This typically leads to a decrease in consumer surplus because consumers have fewer goods available at higher prices. Producer surplus may increase because domestic producers face less competition from imports. However, the total surplus in the market decreases due to the inefficiency introduced by the quota. ‖ ‖ b ⋮ Deadweight Loss: The imposition of a quota creates deadweight loss because it prevents the market from reaching its allocatively efficient equilibrium. The deadweight loss represents the lost welfare or the reduction in total surplus that occurs because the quantity of goods traded is less than the equilibrium quantity. ‖ ‖ c ⋮ Answer Choice Analysis: - (A) is incorrect because deadweight loss is not eliminated. - (B) is incorrect because consumer surplus does not increase. - (C) is correct because consumer surplus decreases, producer surplus increases, and total surplus decreases. - (D) is incorrect because producer surplus does not decrease. - (E) is incorrect because tax revenue is not generated by a quota. ‖ ∻Answer∻ ⚹ (C) Consumer surplus decreases, producer surplus increases, and total surplus decreases. ⚹ ∻Key Concept∻ ⚹ Quota Impact on Market ⚹ ∻Explanation∻ ⚹ A quota restricts the quantity of goods that can be imported, leading to higher prices and reduced consumer surplus. Producer surplus may increase due to reduced competition, but the total surplus decreases due to the inefficiency introduced by the quota, resulting in deadweight loss. ⚹◊How does the imposition of a quota in an importing country affect consumer and producer surplus in a market?⍭ Generate me a similar question◊

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