Suppose that in February the market price of a pound of Italian cheese in the U.

Question

Suppose that in February the market price of a pound of Italian cheese in the U.S. was $3. This resulted in revenue to Italian cheese producers of $1,650 (i.e., 550 pounds imported multiplied by the selling price of $3). American cheese producers have complained that the price of Italian cheese in the U.S. is too low, resulting in American cheese producers losing money. These American cheese producers persuade the U.S. Federal government to impose a quota of 300 pounds of Italian cheese during March. As a result, in March, the revenue to Italian cheese producers will be less than $1,650. Which of the answer choices gives the amount of revenue that the U.S. Federal government will receive in March because of the quota on Italian cheese?

A. More information is needed; specifically, the amount of revenue earned by Italian cheese producers must be known.

B. $1,650

C. $900

D. $0

Explanation / Answer

Government uses means of quota to reduce the quantity imported of a particular goods in the domestic market and to to promote the domestic production of the given commodity. Quota helps in increasing the price of the given commodity by restricting or limiting the imported quantity.Quotas generate no revenue for the government. It is tariff which helps government to generate revenue. So as per above fact option D is correct.

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