Question

What happens to the following under each of the two policies: tariff or quota (increase; decrease; or uncertain):

1. The U.S. price of agricultural equipment
2. The quantity of agricultural equipment imported into the U.S.
3. The quality of imported agricultural equipment

Answer 1

The U.S. price of agricultural equipment.

Tariff: The tariff will increase the price of the equipment. It will encourage the domestic producers to produce more due to increased price thus generating revenue to the economy.

Quota: The quota may increase the price of the equipment as it restricts the supply of the equipments thereby increasing prices.

The quantity of agricultural equipment imported into the U.S.

Tariff: It is uncertain as tariff is levied to reduce dependency on imports by the country. It raises the price of the goods thereby discouraging imports. However there are no restrictions on the quantity of goods.

Quota: As quota places restriction on the quantity of goods to be imported, the quantity of equipments to be imported will decrease.

The quality of imported agricultural equipment.

Tariff: It is uncertain because to bear the cost of tariff, the importer may or may not compromise on the quality.

Quota: It may increase as the government may place hidden quota on the quality, thereby only best quality equipment entering the country.