CFA Practice Question

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CFA Practice Question

Quotas are more harmful than tariffs because ______
A. they prohibit foreign producers from selling additional units regardless of how much lower their costs are relative to domestic producers and they generate no revenue for the government.
B. they encourage free trade while tariffs impose restrictions that increase prosperity domestically.
C. they generate no revenue for the government.
Explanation: Quotas are more harmful than tariffs because the quota restricts supply domestically and diverts resources from efficient to inefficient use. Additionally, a tariff transfers revenue from consumers to the government while a quota transfers revenue from domestic consumers to foreign producers.

User Contributed Comments 3

User Comment
Dieckmann well you can debate this
KrzysztofW Yes you can. If the question would be "Quotas are harmful because" - then A would be a good choice.
ioanaN But if there is a decrease in domestic production, it follows there was no need in import. consumer demand would be covered by domestic supply. no?
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