Which statement best describes the general effect of tariffs and quotas on markets?

Which statement best describes the general effect of tariffs and quotas on markets?

• A. They lower prices and increase quantities.
• B. They have no impact on prices or quantities.
• C. They raise prices and lower quantities.
• D. They only affect export levels.

Answer: (C)

Tariffs and quotas act as barriers to trade, limiting the flow of imports into a market. A tariff adds a tax on imported goods, which raises the price that buyers pay and reduces the quantity demanded and imported. A quota sets a hard limit on how much can be imported, so supply from abroad is restricted; with less available, the domestic price rises and the total traded quantity falls. In both cases, consumers face higher prices and purchase less, while domestic producers may gain from the higher price. There’s also a loss of overall welfare due to the inefficiency created by restricting trade. So the general market effect is higher prices and lower quantities.

Tariffs and quotas act as barriers to trade, limiting the flow of imports into a market. A tariff adds a tax on imported goods, which raises the price that buyers pay and reduces the quantity demanded and imported. A quota sets a hard limit on how much can be imported, so supply from abroad is restricted; with less available, the domestic price rises and the total traded quantity falls. In both cases, consumers face higher prices and purchase less, while domestic producers may gain from the higher price. There’s also a loss of overall welfare due to the inefficiency created by restricting trade. So the general market effect is higher prices and lower quantities.