ACCA Applied Knowledge · Business and Technology · Political and legal factors affecting business
Government of Zendia imposes a quota limiting imports of steel to 50,000 tonnes per year. Which is the most likely direct effect of this measure?
Domestic steel prices tend to rise. A quota caps the quantity of imports, reducing supply available in the home market and shielding local producers from foreign competition. Unlike a tariff, a quota does not itself raise government revenue and it does not restrict exports.
- ADomestic steel prices tend to rise because supply from overseas is restrictedCorrect
- BDomestic steel prices tend to fall because competition increases
- CGovernment receives tariff revenue on every tonne imported
- DExports of steel from Zendia are legally banned
Explanation
A quota is a physical limit on the quantity imported. Restricting supply tends to push domestic prices up and protects local producers. It does not generate tariff revenue (that is a tariff feature), and it does not affect exports.
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