Question

Discuss the market reaction based on the elimination of all import quotas and tariffs.

Answer 1

Both tariff and quotas are used to make restriction upon the imports. Tariff is the rate which imposed n imports which passed to customers leads to higher price rate. Quota is the numerical digit which how much of the quantity of a product imported into a country. This kind of measures helps the domestic producers to avoid high competition in the market. The protection of these domestic companies maintains jobs through increased sales of domestic gods. This will leads to high tax revenue. If the tariff rates eliminated from the market, it will encourage the foreign countries to sell their products in the domestic markets. Thus the foreign goods become cheap in the domestic market. This enhances the choice of goods and also increases the quality of consumers.
On the other side, this elimination of tariff and quotas will affect the domestic producers very badly. This leads to increasing competition among them. And also increase the supply levels and lowering of prices. This will increase the purchasing power of the consumer with low level price rates. When tax rates fall down, there is a high flow of foreign goods to the domestic market. But the domestic country dependence increased towards the rest of the world. This will reduce the national income and also affect the total GDP of the country.