A country imposes import quotas. The suppliers of imported goods set market-clearing prices. Assuming that demand for imports is price-inelastic, what effect will this have on the country’s balance of trade and its terms of trade?
- Abalance of trade improves; terms of trade improve
- Bbalance of trade improves; terms of trade worsen
- Cbalance of trade worsens; terms of trade improve
- Dbalance of trade worsens; terms of trade worsen