Question

Which statement BEST reflects the difference between tariffs and quotas?

A) Tariffs set limits on imports, while quotas raise prices on exports.
B) Tariffs set limits on exports, while quotas raise prices on imports.
C) Tariffs raise prices on exports, while quotas set limits on exports.
D) Tariffs raise prices on imports, while quotas set limits on imports.

Answer 1

Quotas set limits on imports, while tariffs raise prices on imports .

Option: D

Explanation:

A tariff in an economy is a tax that is applied to a product which is intended to limit the trade in addition to generate tax revenue. It means that a tariff is applied to the goods which are going to be exported. While a quote is considered to be a quantitative limit which is intended to put on the sum of the goods and services that can be imported. In economics, quotas are considered to be more in effect than the tariffs especially when the domestic demands for a particular thing is not a price-sensitive.