Question

Please define the similarities and differences in the economic effects of tariffs and quotas? Which one is more effective in protecting an industry and why?

Answer 1

Answer:

Tariff : a tax imposed on the import of a commodity by the government is called as tariff. Government imposes tariff to reduce the imports.

Quota: it is the limit on the imports of a commodity by the government. Government sets the limit on the quantity to be imported of a commodity.

Similarities:

• Tariff and quota both increases price of the commodity
• The demand for the commodity decreases. Both produce same consumer effect as consumers buy less goods.
• Both create same effects on producers as motive producers to produce more of the commodity
• Both tariff and quota reduces imports

Differences:

• Tariff is a tax on the price while quota is the limit set on the quantity of the import
• Tariff creates revenue for the government while quota does not create any revenue for the government. Most probably the producers get the benefits

Tariff is more beneficial in protecting domestic industries as it increases price of the good which decreases demand for the imported goods in the domestic markets. The demand for domestic goods increases which motivates domestic producers to increase production and it also protects infant industries from foreign competition