Question

Its a single question so need full answer for each sub part. the overall answer should be between 200 and 300 words. Upvote will be given for correct answer.

1. Summarise the effect of a tariff and the effect of a quota based on the following questions:

i) Does the importing country gain or lose overall from implementing a tariff or a quota?

ii) Do the following groups in the importing country gain or lose from a tariff or a quota?

 Consumers of the importing country

 Producers of the importing country

 The government of the importing country

 Producers of the exporting country

Answer 1

i) Tariff or quota implemented by a importing country may raise national welfare. Producers of the product and receipts of government spending will benefit. Not everyone's welfare rises as there is redistribution of income.

ii) Effect of tariff or quota on

a) Consumers of the importing country:-

Consumer of the product in the importing country will suffer a reduction in well-being as a result of the tariff. Increase in domestic price of both imported goods and the domestic substitutes reduces the amount of consumer surplus in market.

b) Producers of the importing country:-

Producers of the importing country experience a increase in well-being as a result of tariff. The increase in price of their product on market increases producer surplus in the industry.

c) Government of the importing country:-

The government will recieve revenue as a result of tariff. Who benefits from the revenue depends on how the government spends it. Typically, the revenue is simply included by governement as part of general funds collected by government from various sources. In this case, it is impossible to identify who precisely benefits.

d) Producers of the exporting country:- Producer in exporting country experience a decrease in well-being as result of tariff or quota. Decrease in the price of their product decrease producer's surplus in industry.