CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

If a country was deciding between tariffs and quotas, which of the following statements can be justified?
A. Quotas are superior to tariffs as they can be removed at any time and can be targeted at specific products.
B. Quotas and tariffs lead to the same result in terms of loss of consumer surplus for the importing country. Neither dominates the other.
C. Tariffs are superior to quotas because the taxes accrue to the government, whereas under quotas, lost consumer surplus accrues to foreign producers.
Explanation: Under quotas and tariffs, the loss of consumer surplus is identical. In the former's case it goes to foreign producers and creates a lobby and special interest groups among them, whereas under tariffs, the consumer surplus lost accrues to the government of the importing country.

User Contributed Comments 1

User Comment
heinzlive Yes. In the reading it is stated that the gap between the import supply price and the domestic price goes to the person who has the right to import.
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