A quota that results in the same level of imports as a tariff is more detrimental to an economy because?


Question: A quota that results in the same level of imports as a tariff is more detrimental to an economy because?

A quota that results in the same level of imports as a tariff is more detrimental to an economy because:

  • It creates inefficiency. A quota limits the quantity of imports that can enter a country, which can lead to higher prices for consumers and businesses. This is because importers have to compete for a limited number of import licenses, which drives up the price of imports.
  • It reduces competition. A quota reduces the number of imported goods that are available in a country, which can reduce competition for domestic producers. This can lead to higher prices and lower quality goods for consumers.
  • It distorts trade. A quota creates a wedge between the domestic and international price of goods, which can lead to trade diversion. This means that some imports that would normally come from more efficient producers are diverted to less efficient producers, which reduces global efficiency.
  • It is more difficult to adjust. A quota is a more rigid policy than a tariff. This is because a quota sets a fixed limit on the quantity of imports that can enter a country, while a tariff can be adjusted up or down depending on market conditions. This makes it more difficult for an economy to adjust to changes in the global economy if it has a quota on imports.

In contrast, a tariff is a more flexible policy that can be adjusted to reflect changes in market conditions. This makes it easier for an economy to adjust to changes in the global economy if it has a tariff on imports.

Overall, a quota is more detrimental to an economy than a tariff because it creates inefficiency, reduces competition, distorts trade, and is more difficult to adjust.

Here is an example to illustrate the difference between a quota and a tariff:

Suppose that the government of a country wants to reduce the quantity of imported cars by 50%. It could do this by imposing a tariff of 50% on imported cars. Alternatively, it could impose a quota that limits the number of imported cars to 50% of the current level.

If the government imposes a tariff of 50% on imported cars, the price of imported cars will increase, but consumers will still be able to buy as many cars as they want. However, if the government imposes a quota on imported cars, consumers will be forced to compete for a limited number of import licenses. This will drive up the price of imported cars and make it more difficult for consumers to buy cars.

Therefore, a quota is more detrimental to an economy than a tariff because it creates inefficiency, reduces competition, and distorts trade.

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