If a tariff and import quota lead to equivalent increases in the domestic price of steel, then ?
Correct answer: D. They have different impacts on how income is distributed
- A. the quota results in efficiency reductions but the tariff does not
- B. The tariff results in efficiency reductions but the quota does not
- C. They have different impacts on how much is produced and consumed
- D. They have different impacts on how income is distributed
Explanation
A tariff and quota can produce the same domestic price, output, and consumption, so their efficiency effects are similar. They differ in income distribution because a tariff creates government revenue, whereas a quota creates import-license rents for quota holders.
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