CFA Level I · CFA Level I Exam · International Trade
Country A imposes a quota on imported shoes. Compared with an equivalent tariff that limits imports to the same quantity, the quota will most likely result in the revenue difference going to:
The quota rent most likely goes to foreign exporters if they hold the import licenses. Under a tariff the government collects the price gap as revenue, but a quota creates the same higher domestic price with the gap going to license holders.
- Aforeign exporters holding import licenses, if licenses are given to themCorrect
- Bthe domestic government in all cases
- Cdomestic consumers through lower prices
Explanation
A quota raises the domestic price like a tariff, but the price gap (quota rent) accrues to whoever holds the import licenses. If licenses go to foreign exporters, they capture it, whereas a tariff gives revenue to the government. Consumers face higher prices under both.
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