For a country that is considering the adoption of either a tariff or an import quota on a particular good, an important difference is that

Question

BlackTom AI · Accepted Answer

When evaluating the effects of a tariff versus an import quota on a single good, we must consider how each instrument affects prices, surpluses, and government revenue.
Option A: 'an import quota has no effect on consumer surplus, while a tariff decreases consumer surplus.' This is incorrect because an import quota reduces the quantity of imports and raises the domestic price, which lowers consumer surplus just as a tariff does; both policies typically reduce consumer welfare, not just one.
Option B: 'an import quota has no effect on producer surplus, while a tariff decreases producer surplus.' In reality, an import quota tends to increase domestic prices and can raise producer surplus by protecting domestic sellers, so saying a quota has no effect on producer surplus is inaccurate. A tariff usually raises the domestic price as well and can increase producer surplus for domestic firms, at least in the short run; the claim that it decreases producer surplus is therefore misleading.
Option C: 'a tariff raises total surplus, while an import quota does not.' This is not correct because tariffs generally create deadweight losses by distorting quantities traded and shifting surplus between consumers, producers, and the government, leading to a net fall in total welfare. Quotas also produce deadweight losses and typically reduce total surplus as well; in some cases the quota system can transfer more surplus to license holders, but it does not increase total surplus.
Option D: 'a tariff raises revenue for that country’s government, while an import quota does not.' This statement captures a key difference: tariffs generate government revenue from the tax on imports, whereas a quota primarily creates scarcity rents captured by license holders unless the licenses are auctioned; the government does not automatically collect revenue under a quota. Consequently, this option correctly identifies the fundamental distinction between the two instruments.

For a country that is considering the adoption of either a tariff or an import quota on a particular good, an important difference is thatSingle choice

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For a country that is considering the adoption of either a tariff or an import quota on a particular good, an important difference is thatSingle choice

Similar Questions

How would you describe the main difference between import tariff and quota? Select one – the most appropriate answer.

How would you describe the main difference between import tariff and quota? Select one – the most appropriate answer.

In a small, open economy, domestic demand for calculators is given by P = 66.1 – Q, domestic supply is given by P = 3.1Q and the world price is $6.4. The economic advisors of the country decide to impose a tariff of $6. What quota will have the same impact as the tariff?

A quota generates a protective effect just like a tariff. Using the graph, calculate the “equivalent import tariff” that would produce the same result as an import quota of 200 units.

Suppose Home country threatens to impose a quota on imports of a good from Foreign country. In response, Foreign country unilaterally agrees to limit exports to Home country. This will have the effect of

A quota generates a protective effect just like a tariff. Using the graph, calculate the “equivalent import tariff” that would produce the same result as an import quota of 200 units.

If a small country imposes a quota, its deadweight loss will be identical to what it would face if it had imposed a comparable tariff as long as either the government ____ or ____ .

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If a small country imposes a quota, its deadweight loss will be identical to what it would face if it had imposed a comparable tariff as long as either the government or .