Which statement correctly defines quotas and tariffs?

• A. Quotas are limits on imports and exports; tariffs are taxes on imports and exports.
• B. Tariffs are limits on imports and exports.
• C. Quotas are taxes on imports and exports.
• D. Tariffs are currency controls; imports and exports.

Answer: (A)

Quotas and tariffs are two main ways governments control cross-border trade. A quota sets a cap on how much of a good can be bought or sold across the border in a given period. Once that limit is reached, no more of that good can move in or out, which reduces supply and tends to push up prices for the restricted item. A tariff is a charge on goods crossing the border, effectively a tax that raises the price of imported goods and makes them less competitive with domestic products. In many basic explanations, tariffs are described as taxes on imports (and sometimes on exports in less common contexts). The statement that quotas are limits on imports and exports and tariffs are taxes on imports and exports captures these core ideas, which is why it’s the best fit.