If a quota is set above the equilibrium quantity, there will be:

a. a supply price for the quantity transacted that will exceed the demand price of the quantity transacted.

b. missed opportunities in the form of mutually beneficial transactions that don't occur.

c. no effect from the quota.

d. a lower price than the market equilibrium price. e incentives for illegal activities.

Question

Business

Mark Marsh

20 May, 20:22

If a quota is set above the equilibrium quantity, there will be:

a. a supply price for the quantity transacted that will exceed the demand price of the quantity transacted.

b. missed opportunities in the form of mutually beneficial transactions that don't occur.

c. no effect from the quota.

d. a lower price than the market equilibrium price. e incentives for illegal activities.

+3

Answers (1)

Know the Answer?

Phillip Arellano · Answer 1

The correct answer is option c.

Explanation:

The quota is a non-tariff restrictive barrier on trade imposed by importing countries. It is the quantitative limit fixed on the imports. When a quota is imposed below the equilibrium price. It will lead to a reduction in supply and cause an increase in price. This will increase producer surplus for domestic producers but reduce consumer surplus.

If a quota is imposed above the equilibrium quantity it will not affect the market. This is because the suppliers are already supplying less than the quota limit.