Which statement accurately differentiates tariffs and quotas?

• A. Tariffs are quotas; quotas are taxes on imports.
• B. Tariffs have no effect on price.
• C. Tariffs are taxes on imports; quotas are limits on quantity; both raise costs and restrict supply; tariffs affect price; quotas limit volume.
• D. Tariffs increase supply and quotas increase competition.

Answer: (C)

When you compare tariffs and quotas, the key idea is that tariffs are taxes on imports, while quotas are explicit caps on the quantity that can be imported. That difference matters for how each tool changes the market.

A tariff raises the price of imported goods by adding a tax at the border. This makes imports more expensive, reducing demand for them and providing the government with tariff revenue. A quota, on the other hand, simply limits how much can be brought in; once the cap is hit, no more imports can enter, regardless of price. This restriction reduces overall supply in the domestic market and tends to push prices up, but the extra value from higher prices often goes to foreign producers or to license holders, not the government.

So both instruments raise costs and constrain supply, but tariffs affect price by creating a wedge between domestic and foreign prices and generating government revenue, while quotas directly cap the volume of imports. That combination is why the statement that tariffs are taxes on imports and quotas are limits on quantity, with both raising costs and restricting supply, and with tariffs affecting price and quotas limiting volume, is the best description.