Tariffs raise prices on imports, while quotas set limits on imports.
Further Explanation:
Government of every country intervene in international trade. The factors are both economic as well as non-economic. This intervention is called protection. The Government policy of protection helps the domestic industries against the foreign competition. There are various other methods of protection aimed at raising exports and reducing imports. The Tariff is a tax on imported goods.
It is generally imposed by the government on the imports of a commodity, whereas quota is a quantity limit. It has powers to restrict the imports of the commodities physically. It defines the maximum amount which can be imported in a period. Tariff increases the GDP of the country whereas Quotas does not affect the GDP. Tariffs result in fall in the consumer's surplus and an increase in producer’s surplus. Quota results in decrease of consumer surplus.
The income generated through tariff is used by the government. The income generated by quotas is used for import. There are two types of tariffs: Ad valorem Tariff and Specific Tariff. Ad valorem tariff is calculated on the value of imported products. A Specific tariff is a specific amount that is charged upon the type of goods.
Quotas are the upper limit that is put by the federal government on the goods and services imported and exported from or to other countries in any given period. It helps in measuring the regulation of trading amount between the countries. Quotas do not contribute and generate revenues but increase the production of goods.
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Answer Details:
Grade: High School
Subject: Political Science
Keywords: International trade, raising exports, reducing imports, quantity limit, increases, GDP, consumer surplus.