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CA Foundation · Business Economics · International Trade

Which of the following is the main effect of an import quota on the price of the imported good in the domestic market, compared with free trade?

An import quota generally raises the domestic price of the good. It limits the quantity entering the country, so total supply falls while demand stays the same, pushing the domestic price above the free-trade world price. Consumers therefore pay more and domestic producers gain.

  1. AThe domestic price generally rises because supply is restrictedCorrect
  2. BThe domestic price generally falls because imports are controlled
  3. CThe domestic price stays exactly the same as the world price
  4. DThe domestic price becomes zero for consumers

Explanation

An import quota caps the quantity that can enter the country. With limited supply and unchanged demand, the domestic price rises above the world price. Option B reverses the effect, since restricting supply cannot lower the price.

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