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Quotas have the same qualitative effect as tariffs. A prohibitive quota is equivalent to a prohibitive tariff. A less stringent quota might limit imports to 100 clothing units. A quota of 100 units would lead to the same equilibrium price and output, as did the $2 tariff.
Although there is no essential difference between tariffs and quotas, some subtle differences do exit.
A tariff gives revenue to the government, perhaps allowing other taxes to be reduced and thereby offsetting some of the harm done to consumers in the importing country. A quota, on the other hand, puts the profit from the resulting price difference into the pocket of the importers or exporters lucky enough to get a permit or import license. They can afford to use the proceeds to wine, dine, or even bribe the officials who give out import license.
Because of these differences, economists generally regard tariffs as the lesser evil. However, if a government is determined to impose quotas, it should auction off the scarce import quota license. I think this answer will satisfy your question.
Although there is no essential difference between tariffs and quotas, some subtle differences do exit.
A tariff gives revenue to the government, perhaps allowing other taxes to be reduced and thereby offsetting some of the harm done to consumers in the importing country. A quota, on the other hand, puts the profit from the resulting price difference into the pocket of the importers or exporters lucky enough to get a permit or import license. They can afford to use the proceeds to wine, dine, or even bribe the officials who give out import license.
Because of these differences, economists generally regard tariffs as the lesser evil. However, if a government is determined to impose quotas, it should auction off the scarce import quota license. I think this answer will satisfy your question.
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