Which trade barrier can lead to potential black market activity?

Quotas are specific limits set by a government on the quantity of a particular good that can be imported or exported during a given time frame. When a country imposes a quota, it restricts the amount of a product that can enter the market, which can lead to shortages of that product in the domestic market. As a result, the demand for the product may continue, but the legitimate supply is limited due to the quota.

This limitation creates an opportunity for black market activity, where individuals or businesses may illegally import or sell the restricted goods to meet consumer demand. The higher prices that often accompany scarcity can incentivize participants to engage in such illegal activities, as they seek to profit from the inability of official channels to provide sufficient supply.

In contrast, tariffs involve taxes on imported goods that can raise prices but do not directly limit the quantity of goods entering a market. Embargoes are outright bans on trade with certain countries, which can certainly lead to black markets, but typically with a more severe and broad approach. Free trade agreements are designed to reduce or eliminate barriers and promote trade, which tends to decrease the likelihood of black market activities.