If both a tariff and an import quota cause the same rise in the domestic price of steel, what is the effect on production and consumption?

Show Answers

Only the quota causes a loss in efficiency, whereas the tariff does not.Only the tariff leads to efficiency losses, while the quota does not.Both measures produce the same effect on the quantities produced and consumed.Both policies have the same effect on the distribution of income.Neither affects production or consumption levels.

Explanation

When a tariff and an import quota raise domestic steel prices by an equal amount, they both restrict supply similarly, resulting in identical changes in production and consumption levels. However, their impacts on efficiency and income distribution may differ.