How do tariffs and quotas differ? Can you think of any reason why foreign producers might...

How do tariffs and quotas differ? Can you think of any reason why foreign producers might prefer a quota rather than a tariff? Explain your answer.

Expert Solution

Tariffs and quotas are imposed by government on import and export of goods in order to protect their foreign trade.

Difference between quota and tariff

1. Quota – it is the ceiling on the quantity of the product going to import or export.

Tariff – it is a tax imposed on import and export of goods.

2. Quota- it does not generate any revenue to the government

Tariff- it generates revenue for the government.

3. Quota – it is more restrictive and increases corruption in the economy.

Tariff – it is less restrictive and less vulnerable to corruption.

4. Quota- it reduces consumer’s and producer’s surplus and beneficial to quota holders / importers

Tariff- it reduces consumer’s surplus and increases producer’s surplus and it increases GDP (gross domestic product).

Foreign producers might prefer a quota rather than a tariff: because quota is beneficial for quota holders and it increases production while imposition of tariff reduces imports.

Rahul Sunny answered 2 years ago

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How do tariffs and quotas differ? Can you think of any reason why foreign producers might...

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