If a country removed an import quota on cotton, then overall that country's Group of answer choices exports and imports would rise

Economics May 17, 2021

If a country removed an import quota on cotton, then overall that country's

Group of answer choices

exports and imports would rise.

exports and imports would fall.

exports would fall and imports would rise.

exports would rise and imports would fall.

Expert Solution

Answer:

Option (1).

An import quota restricts imports, by raising domestic price which decreases domestic demand (QD) and increases domestic supply (QS). When the quota is removed, domestic price decreases, so QD increases and QS decreases, increasing imports (= QD - QS). However, at lower domestic price, foreign demand for domestically produced cotton will increase, which will also increase the export of cotton.

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