TARIFFS VERSUS QUOTAS

Tariffs versus Quotas

Tariffs versus Quotas

Introduction

The basic definition of tariffs is that they are a tax on goods produced abroad and sold domestically and it can also be described as an import tax. Tariffs have the effect to curb the international specialization and reduce economic welfare because it prevents states from the trade, which in turn forces a wider range of goods they produce. So the result is that there is less international trade, since they can give it more expensive for outsiders to the domestic market (Radcliffe, 2011).

Tariff is a tax on foreigners. Quota just reduces the amount of exports; quota makes the demand for local products increase in comparison to imported goods. The tax on foreign goods makes the imported goods expensive. Increase in demand for local goods makes the provincial goods expensive. Consumers do not have much choice as there is less variety in the market than before. Due to quota imposed the foreign supply reduced. This causes an increase in the price of the imported goods. In response to the high price, local manufacturers start expanding the production. But the supply could not equal the sum as it was before. The overall effect of quota is a decrease in supply and a higher price in products, both local and imported (Radcliffe, 2011).

Tariffs versus Quotas

Tariffs preferred over quotas because they generate revenues for the government. Importing quotas can lead to administrative corruption where the custom office has the right to allow the importers they like and favor them. Tariffs control the price of the good also the quantity imported. If both tariffs and quotas set at an unacceptable level, then they can cause smuggling (Shaw, 2009).

Tariffs imposed to protect the local employment, consumers, new local industries, national security and retaliation. Specific tariffs imposed as a fixed charge ...