Answer to Question #307404 in Microeconomics for megan

Question

Suppose the government wants to limit imports of a certain good. Is it preferable to use an

import quota or a tariff? Motivate why you recommend one over the other. [8]

Answer 1

Quota restricts the quantity of a good imported from another country while tariffs are levies charged on the value of goods imported. Quotas are much better than tariffs. Quotas provide the specific amount of goods that can be imported into the country making the importation of those products have a limit. Tariffs are not good depending on the nature of the product. If it is an addictive product, then the citizens will adjust to the prizes, which will be reflected on the goods are a results of levies. A good example is that of alcohol, which promotes addition. Settings the levies will only mean that the prices are raised, which will make the levies on the goods to be reflected on the alcohol being imported by price increase. The customers will adjust to the prices. Quotas on the other hand, limits the quantity and therefore once the maximum threshold is reached at, there will be shortage of the product if there was excess demand.