Question

Discuss how tariffs and quotas impact short run and long run trade equilibrium.

Answer 1

A tariff calculated on the basis of the value of the imported good, expressed as a percentage of such value. For example, an ad valorem tariff of 10% on an imported car worth US$ 10000 would lead to a requirement to pay US$ 1000 as customs duty.

Impact of Tariffs and quotas
There are two main purposed of imposing tariffs by the Governments.

To protect their domestic industries from the competition of imports.
To collect revenue.
This means that the tariff levied on an imported product imposes costs on both, the country “exporting” the product and the country “Importing” that product and imposing the tariff. The imposition of import tariffs increases the domestic price of the imported good. This usually brings gains for domestic producers of the good and the government in the importing country, but also losses for consumers (who will buy less of the product since the price is higher) and for other domestic producers who use that good as an input.

Impact of Tariffs
There are two main purposed of imposing tariffs by the Governments.

To protect their domestic industries from the competition of imports.
To collect revenue.
This means that the tariff levied on an imported product imposes costs on both, the country “exporting” the product and the country “Importing” that product and imposing the tariff. The imposition of import tariffs increases the domestic price of the imported good. This usually brings gains for domestic producers of the good and the government in the importing country, but also losses for consumers (who will buy less of the product since the price is higher) and for other domestic producers who use that good as an input.