An import quota is

A) a tax on imported goods.
B) revenue producing for state governments but not the federal government.
C) always tied to a foreign nation's trade policies toward American goods sold in that country.
D) deflationary.
E) a limit on the quantity of foreign goods that can be sold in a nation's domestic market.

An import quota is a limit on the quantity of foreign goods that can be sold in a nation's domestic market. It is a form of trade restriction that is implemented by the government to protect domestic industries from foreign competition. It is designed to limit the quantity of imported goods so that domestic producers can boost their sales and profits. Unlike a tax on imported goods, an import quota does not generate revenue for the government. Instead, it directly limits the quantity of foreign goods that can be sold in the domestic market. It is not always tied to a foreign nation's trade policies toward American goods sold in that country, as it can be implemented unilaterally by a country without any agreement or negotiation with its trading partners. An import quota can be deflationary if the higher prices of domestically produced goods reduce consumer demand and lower overall economic activity.