Question

1. To protect U.S. jobs in the agricultural equipment industry, Congress could impose a specific tariff or persuade foreign producers of agricultural equipment to agree to a voluntary export restraint agreement.
   1. Which of these two policies (tariff or quota) is likely to be less damaging to the U.S.? In your answer discuss the different outcomes caused by: 1) the terms of trade effect of a tariff; and 2) who is assigned the quota rents (domestic importers or foreign exporters).

Answer 1

Quota and tariff both are the method of protection of an economy ,when government follows protection like tariff and quotas it means government does not support foreign competition . Tariff and quota both are the method of import restriction.Tarifr is tax imposed by government on imported good where as quota are quantity limit.

Tariff can be less damaging for the economy in spite of quotas.

Effects of tariff:-

1.Since tariff raises price of imported goods therefore consumer buy less.

2.Tariff increases domestic output as well because as higher prices induces producer to producer more.

3.Tariff increases revenue of goverment because govt revenue is volume of import multiplied by the tariff.