Question

A quota on imported avocadoes ______________ the price of avocadoes, _____________ consumers’ surplus for avocado buyers, _______________ producers’ surplus of avocado growers and __________________ tariff revenue. Because the loss to _____________ is more than the gain to ___________________, there is a net loss to society.

Answer 1

A quota on imported avocados raises prices, decreases consumer surplus, increases producer surplus, creates tariff revenue, but causes a net societal loss due to consumer losses outweighing producer and government gains.

Step-by-step explanation:

A quota on imported avocados increases the price of avocados, decreases consumers' surplus for avocado buyers, increases producers' surplus of avocado growers, and creates tariff revenue. Because the loss to consumers is more than the gain to producers and government through tariff revenue, there is a net loss to society.

The imposition of a tariff or quota results in two primary outcomes: consumers end up paying a higher price and purchasing smaller quantities, whereas domestic producers receive higher prices and sell larger quantities. These effects lead to a redistribution of economic welfare - consumers end up worse off while producers and the government can potentially be better off. However, the overall loss in consumer surplus often outweighs the gains in producer surplus and government revenue, leading to a decrease in social surplus or the overall economic welfare of society.

Answer 2

The correct answer is: increase; reduce; increase; does not generate; consumers; producers and government

Step-by-step explanation:

A quota is a trade restriction that limits the quantity imported of a good. An import quota on avocadoes will reduce the supply of avocadoes. This will cause the price of avocadoes to increase. This increase in price will reduce the consumer's surplus and increase the producer surplus.

A quota does not generate any revenue for the government.

This imposition of quota creates a deadweight loss for the society as the loss in consumer surplus is greater than the increase in producer surplus and government revenue.