Question 39

Revenues of the domestic producer increase.

Import quotas restrict the amount of foreign goods that can enter a country, leading to an increase in demand for domestically produced goods. This situation allows domestic producers to raise their prices and ultimately increases their revenues.

A) Domestic supply of goods increases.

While it may seem that import quotas could increase domestic supply due to reduced foreign competition, the primary effect is not an increase in supply but rather a shift in demand towards domestic goods. Therefore, this option does not accurately reflect the impact of import quotas.

B) Revenues of the domestic producer increase.

This option is correct because as import quotas limit foreign competition, domestic producers can sell more of their products at higher prices, thus boosting their revenues. The reduced supply of imported goods creates a favorable market for domestic producers.

C) Sales of the domestic producer decrease.

This option is incorrect. Import quotas typically lead to an increase in sales for domestic producers as consumers turn to locally produced goods due to the scarcity of imports. Thus, this does not align with the effects of import quotas.

D) Wages for domestic workers decrease.

This choice is also incorrect. Generally, as domestic producers benefit from increased revenues due to import quotas, they may have more resources to invest in their workforce, potentially leading to stable or increased wages rather than a decrease.

Conclusion

The correct answer highlights that import quotas lead to increased revenues for domestic producers as they face less competition from foreign goods. Other options fail to accurately capture the positive economic impact on domestic producers, showing that import quotas typically enhance their market position rather than hinder it.