Case Interview Prep

Category - Economics

The United States has placed an import quota on corn and oats. What are the effects of import quotas on the prices charged by domestic producers of goods?
  1. no effects on domestic
  2. make price equal to world price
  3. lower price below world price
  4. raise price above world price
Explanation
Answer: D - Import quotas raise prices above world price.

Key Takeaway: Import quotas place limits on the amount of goods that can be imported into a country. By placing import quotas on corn and oats, the United States is raising prices domestically above world price. Domestic buyers end up paying more for the goods while domestic sellers are posed to make high profits due to a reduction in competition from imported goods.
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