Question

What is the difference between a tariff and a quota? Discuss the impact of tariffs on international trade. Include a discussion of the gains from trade and why nations trade?

Answer 1

Tarrif is the tax that is imposed on a imported good to increase the profit of importer and to reduce the consumption of foreign goods. Quota is the quantity of good that can be imported into any country in a period of time. This is limit is set to protect the domestic industries. Hence tarrif is related with price and quota restrict quantity.

Tarrifs have good and bad sides. Tarrifs make the foreign goods costlier than the domestic goods. Since the importance of domestic production increase and there is no need to lower the price due to competition. The government acquire revenue through tariffs which helps to improve the economy. The foreign exporters income will increase. Also protect infant industries.

Some resources are limited into some countries only. Each country have its own trade secret. For example US have better space technologies and japan has advanced electronic systems. The best way to increase the revenue of a country is trade. Global competition and cheap importing make the prices down. Productivity grows more quickly.