What Is the Difference Between a Tariff and a Quota

question 2

Multiple Choice

What is the difference between a tariff and a quota?

• A)A tariff causes an increase in the price,whereas a quota does not affect the price.
• B)Both a tariff and a quota will affect the price,but a tariff has no effect on the quantity,whereas a quota will lead to a reduction.
• C)Both a tariff and a quota will affect the price,but a tariff has no effect on the quantity,whereas a quota will lead to an increase.
• D)A quota affects all foreign producers equally,whereas a tariff does not.
• E)A tariff affects all foreign producers equally,whereas a quota does not.

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Definitions:

Externality

A consequence of an economic activity that is experienced by unrelated third parties.

Externalities

Economic impacts on bystanders not directly engaged, with potential for both positive and negative outcomes.

Transaction Costs

The expenses incurred when buying or selling goods and services, which can include fees, commissions, and the costs of the time and effort involved in making the transaction.

Coase Theorem

A principle stating that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.