In a tariff and import quota lead to equivalent increase in the domestic price of steel, then ?
Correct answer: C. They have identical impact on how much is produced and consumed
- 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 identical impact on how much is produced and consumed
- D. They have identical impact on how income is distributed
Explanation
If a tariff and quota raise the domestic price by the same amount, they produce the same domestic quantity supplied and quantity demanded. Their distributional effects can differ because tariff revenue goes to the government, whereas quota rents may go to licence holders or foreigners.
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