Question

The introduction of a Quota on a non-imported good will always, a. Decrease producer surplus. b. Decrease consumer surplus. c. Increase consumer surplus. d. Increase producer surplus.

Answer 1

Answer : The introduction of a quota on a non- imported goods will always increase producer surplus . As quota has been imposed on imported goods and now they have costly as compared to non- imported goods . The price of domestic goods rises and its bring more revenue. The quota restricts domestic consumer from buying imported goods . And there is increase in quantity demand for non- imported goods which bring increase in producer surplus. In this case increases in producer surplus is more than decrease in consumer surplus.