Final answer:
An import quota limits the entry of goods to 10,000 units with 1,000 licenses, each for 10 units. Comparatively, a tariff increases costs without limiting quantity. Both result in higher prices and reduced supply, affecting consumer and producer surplus.
Step-by-step explanation:
When a quota is imposed, it restricts the quantity of a good that can be imported into a country. In the scenario presented, the import quota restricts imports to 10,000 units. As there are 1,000 import licenses issued, with each allowing the import of 10 units, the quantity of the goods imported after the quota is imposed will be exactly the same as the restricted amount, which is 10,000 units (1,000 licenses * 10 units/license).
The subject of the question is related to the effects of trade barriers, specifically an import quota. Comparing this to the use of a tariff, a quota results in a fixed number of goods allowed into the country, while a tariff increases the cost of the imported goods. While both methods increase the price of the product and reduce the quantity imported, the distribution of the increased revenue is different. With a quota, the foreign producers may still receive the full higher price, whereas, with a tariff, they receive the price less the amount of the tariff
The general impact of both quotas and tariffs includes higher prices for consumers, restricted supply, and potentially larger sales for domestic producers at the expense of reduced consumer surplus and producer surplus from international trade.