CA Foundation · Business Economics · International Trade
Compared with an import tariff, an import quota that restricts imports to the same quantity differs mainly in that:
A quota fixes the quantity of imports and lets the domestic price adjust, whereas a tariff fixes a tax per unit and lets the quantity imported adjust. Also, the government earns revenue from a tariff, but not from a quota unless licences are auctioned.
- AThe quota earns the government tariff revenue while a tariff does not
- BThe quota fixes the quantity of imports, while the tariff fixes a tax per unit and lets quantity adjustCorrect
- CBoth always give identical results whatever the demand changes
- DThe quota lowers the domestic price while the tariff raises it
Explanation
A quota sets a fixed physical limit on imports, so the price adjusts to demand. A tariff sets a tax on each unit, so quantity adjusts. Option A is wrong because a tariff, not a quota, yields government revenue, and a quota does not lower the price (option D).
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