When a tariff and an import quota cause the same increase in the domestic steel price, what differs between the two policies?

Show Answers

Only the quota causes a loss in economic efficiency, while the tariff does not.Only the tariff causes a loss in economic efficiency, while the quota does not.They affect the quantities produced and consumed in distinct ways.They influence the distribution of income differently.They have identical effects on all economic outcomes.

Explanation

Although both a tariff and an import quota can raise domestic prices by the same amount, their effects on income distribution differ. The quota often creates quota rents that benefit import license holders, whereas the tariff generates government revenue. However, both policies similarly reduce efficiency and have comparable impacts on production and consumption quantities.