Difficulty: Medium

Average Score: 50%

Which gain results from a country imposing a quota on an imported good?

Rationale

A domestic producer has increased sales.

Imposing a quota on an imported good restricts the quantity of that good entering the country, which protects domestic producers from foreign competition. As a result, domestic producers can increase their sales due to reduced supply from foreign competitors and increased demand for local alternatives.

A (A foreign producer has increased sales.) YOUR ANSWER

A quota limits the amount of a good that can be imported, which directly impacts foreign producers by reducing their market access. Consequently, foreign producers are likely to see a decrease in sales rather than an increase, as they cannot sell as much of their product in the country imposing the quota.

B (A domestic producer has increased sales.) CORRECT

By limiting imports, a quota allows domestic producers to capture a larger share of the market, as fewer foreign goods are available to consumers. This increased demand for locally produced goods leads to higher sales for domestic producers, making this the correct answer.

C (The domestic government gains tax revenues.) YOUR ANSWER

While quotas can lead to higher prices for goods, they do not directly generate tax revenues in the same way tariffs do. Tariffs impose a tax on imports, whereas quotas limit quantity without generating direct tax income, meaning the government does not benefit from increased tax revenues through a quota.

D (Foreign prices fall.) YOUR ANSWER

Imposing a quota is more likely to lead to higher prices for foreign goods due to reduced supply in the domestic market. As less of the imported good is available, the prices may actually rise rather than fall, making this option incorrect.

Conclusion

The imposition of a quota on an imported good primarily benefits domestic producers, allowing them to increase their sales by reducing competition from foreign products. Other options either misinterpret the effects of quotas or incorrectly suggest benefits that do not occur under such trade restrictions. Ultimately, quotas serve to bolster domestic industries while limiting foreign market participation.

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