Chapter 44, Problem 6MCQ

To determine

The correct option that determines the difference between the effect of tariffs and the effect of quotas in free-trade output.

Answer to Problem 6MCQ

Option d is correct.

Explanation of Solution

Explanation for the correct option:

d.

Quotas imposed limits on imports where government gains no revenue for such actions. Tariffs refer to the charges levied on imports that increase government revenues. Therefore, option d is correct.

Explanation for incorrect options:

a.

The effect of quotas and the effect of the trade tariff are similar. Therefore, option a is the incorrect answer.

b.

The prices always increase for the goods imported from abroad in either case i.e. tariffs or quotas. Therefore, option b is incorrect.

c.

Revenues do not decrease due to quotas as no charges are levied. Therefore, option c is incorrect.

e.

With both quotas and tariffs imports are restricted. Therefore, option e is incorrect.

Economics Concept Introduction

International trade: International trade is an exchange of goods and services across nations. This is due to globalization and comparative advantage. It means goods are produced in one country and are sold in some other country.