ECONOMICS
BARRIERS TO TRADE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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by increasing production costs for foreign producers
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by decreasing production costs for domestic producers
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by increasing the amount of domestic goods in foreign markets
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by decreasing the amount of foreign goods in domestic markets
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Detailed explanation-1: -Countries sometimes impose quotas on specific products to reduce imports and increase domestic production. In theory, quotas boost domestic production by restricting foreign competition. Government programs that implement quotas are often referred to as protectionism policies.
Detailed explanation-2: -Compared to free trade, quotas reduce consumer surplus, increase domestic producer surplus, and reduce total economic surplus (because of deadweight loss).
Detailed explanation-3: -Tariff rate quotas permit a specified quantity of imported merchandise to be entered at a reduced rate of duty during the quota period. Once the tariff-rate quota limit is reached, goods may still be entered, but at a higher rate of duty.
Detailed explanation-4: -Import quotas offer another means of protectionism. These quotas set an absolute limit on the amount of certain goods that can be imported into a country and tend to be more effective than protective tariffs, which do not always dissuade consumers who are willing to pay a higher price for an imported good.
Detailed explanation-5: -Quota Effects The import quota reduces the supply of imports. This reduces the overall natural supply of goods in the domestic country and causes prices to rise above what many other countries may pay for a good where there are no artificially imposed limits on goods.