If a nation imposes import quotas and the sellers of imported goods still set market-clearing prices, what effect will this have on the country’s balance of trade and its terms of trade, assuming demand for imports is price-inelastic?
- 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