What is the main difference between an import tariff and an absolute import quota?
Import Quotas Definition
Explanation
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How Does Import Quotas Work?The governments of different countries keep a regular check on the number of imported goods. Following the law of demand and supply, the cost of goods whose supply has been limited will see a surge in price. It will limit the supply and shift the supply curve to the left. Subsequently, the new equilibrium quantityEquilibrium quantity refers to the quantity demanded and supplied when there is equal supply and demand in the market. It appears at the equilibrium point when there is neither shortage nor surplus of the specific product happens.read more would be set, which will be lower than the natural equilibrium without quota. Hence imposing quotas will increase the price of goods, eliminating the competitiveness from the foreign market. Although on the negative side, imposing quotas on imports limits the choices available to consumers, which leads them to pay higher prices for certain goods. Example of Import QuotasFor instance, the United States limits the number of Chinese car imports to 3 million per year. This import quota on foreign car products will help the domestic car manufacturing companies to increase their production and establish their footprint in the United States market with maximum profit. It helps increase the country’s GDP and the wealth of domestic suppliers. However, the domestic suppliers might sell the car at higher prices which may harm consumers and lead to retaliation from foreign countries by placing tariffs on US exports. Types of Import Quotas You are free to use this image on your website, templates, etc.,
Please provide us with an attribution linkArticle Link to be Hyperlinked #1 – Absolute QuotaAn absolute quota limits the number of specific goods imported by a country during a specific period. No other goods can be imported into the country once the quota has been fulfilled. The absolute quota is set internationally where goods may be imported from any country until the goal has been achieved. The absolute quota is also set selectively for certain countries. #2 – Tariff Rate QuotaIt is a two-tier level quota system that combines features of both tariff and quotas. Under this system, the initial quota of a product is allowed to be imported at a lower rate. Once the quota is surpassed, goods may further be imported at a higher tariff rate. Effects of Import Quotas You are free to use this image on your website, templates, etc., Please provide us with an attribution linkArticle Link to be Hyperlinked
Import Quota vs Import TariffsAn import tariff is a tax imposed by the government on importing certain products. With the increase in the tariff rate on a commodity, the import of that commodity tends to decline. The government revenue increases with an increase in tariff as it is a direct source of revenue for the government and hence an increase in GDP. Whereas import quota limits the number of goods imported in the country. It reduces the quantity or value of goods imported and a lesser variety of products for the consumer—local manufacturers/traders’ income increases from the products domestically produced due to the imposition of quota. Advantages
Disadvantages
ConclusionImport quotas can be the form of trade restrictions imposed to reduce the number of goods imported. Import quota helps protect the domestic market by generating local business of a country. This helps maintain the balance of payments equilibrium and keep the country’s GDP in check. However, it may put the nation at the risk of retaliation from foreign markets through high tariffs on exports. Recommended ArticlesThis has been a guide to Import Quotas and its definition. Here we discuss objectives, types, examples, effects, and how import quotas work along with advantages and disadvantages. You may learn more about financing from the following articles –
Which of the following statements explains the difference between tariffs and quotas?Tariffs are taxes on imports; quotas are quantity limits on how many imports can enter the country. Both tariffs and quotas increase the equilibrium price and decrease the equilibrium quantity in the domestic market, compared to free trade.
What is the difference between import tariff and import quota?The difference between quotas and tariffs
Their administration and effects, however, differ in specific ways. Quotas restrict the quantity of a good imported from another country. Tariffs are a charge levied on the value of goods imported from another country.
What is the difference between an import quota and a tariff quizlet?-Tariffs are taxes on imported goods, quotas are limit on quantity of goods that can be imported. -Tariff earn revenue & increase GDP,quota neutralizes GDP.
Which is better import quota or tariff?Since the domestic price rises more with the tariff in place than with the quota, domestic producers will enjoy a larger supply (D T vs. S′ Q) and consequently a higher level of producer surplus (not shown). Thus the tariff is more protective than a quota in the face of an increase in domestic supply.
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