2. How does the revenue effect of an import quota differ from that of a tariff?
A tariff is a tax on import able whereas an import quota is a direct quantitative restriction on trade which places an absolute limit upon the volume of imports that can be imported within a fixed time span.
In order to the compare revenue effects of tariff and import quota ,we can go for partial equilibrium or demand supply analysis. In fig2.1 the domestic supply curve and demand curve of a commodity is respectively S and D.
In autarky the equilibrium price and quantity of the goods produced is determined by the intersection of the domestic supply and demand curve. Market clearing autarkic price is Pt .If free trade prevails then price goes down to the international market clearing level Pw. At this price a country produces OT and consumes OW, thus imports TW amount of the good.
Now if the country(small) imposes a tariff of t per unit of the good imported , then domestic price raises immediately by the amount of tariff t ,and it becomes P*=(Pw+t).Increase in domestic price of the goods followed by a tariff has the following effects:
A) Consumption effect : consumption declines from OW to OV.
B) Output effect/protective effect: Higher price induces domestic producers to produce more. Domestic production and output rises from OT to OU.
C) Import reducing effect: as a result of increase in domestic output and a decrease in consumption demand the volume of import declined from TW to
Canada’s trade balance would have been a positive number indicating that more exports than imports were made.
International trade affects the economy by increasing the Aggregate Demand (AD), and by becoming a source of inputs for production. International trade based on the theory of comparative advantage will improve efficiency in allocating resources, as well as allow businesses to reach economies of scale - "the situation in which costs per unit of output fall as output increases", consequently reaching competitive prices of international markets (Colander, 2004, p. 428). When an economy involves itself in trade, under the right circumstances, it is able to shift the Production Possibility Curve (PPC) curve outward, and achieve greater levels of output. This increase in production can be achieved through the use of more resources
Therefore, the imposition of tariffs by the governments of any of the engaged countries would affect the company’s price for their product.
This kind of tax is called a tariff and is enacted to protect domestic producers of the same items that can be imported at much lower costs. Answer the following: (10 points)
Tariffs exist in many different forms, and have various uses dependent on the economic situation and outlook. They can be specific such as a set tax per item, or ad valoreum, with a percentage tax per unit. (McEachern, 2015, p. 282) This paper will discuss function of each and the positive and negative effects of the use of these various tools.
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3. A tariff is the tax of imports and exports to different countries, some countries may have trade agreements to reduce or completely get rid of
13. When a tariff is imposed, there is always an additional loss. One loss occurs when
A tariff is simply a tax or duty put on goods and products leaving or entering a country. In relation to John. A Macdonald it was part of the National Policy. The tax was put in place to help the canadian Economy and generate revenue. Before the National Policy, Alexander Mackenzie put a small tariff in place that was for revenue. The tariff was only about 20 % duty. When John A. Macdonald was in his second run as prime minister,he reinstated the tariff in the national policy only a higher percentage. The reason the tariff was put in place was to protect Canadian manufacturers and protect against the American competition.
A trade quota is a restriction used in international trade to limit the amount or value of imported or exported goods during a specific period of time. It is a type of protectionism imposed by the government in order to regulate the volume of trade between countries. A current product with a trade quota that applies to Canadian imports is beef and veal. The imports from Non – Free Trade Agreement countries (Australia, Japan, New Zealand, and Uruguay) must have an import permit for beef and veal shipments to enter Canada, and the quantity allowed in is 76,409,000 kilograms. Exports of peanut butter from Canada execute a Trade Rate Quota subjected under Canada’s Export and Import Permits Act. Only the United States hold restrictions on Canada’s
As a result, of rising opportunity costs, domestic production may stop short of complete specialization. However, if a large group of people and nations are benefiting from specialization and in international exchange, the government has the power to restrict the free flow of imports or encourage exports. Government can interfere with free trade by protective tariffs, import quotas, nontariff barriers, and export subsidies. Protective tariffs are tariffs that are enacted with the aim of protecting a domestic industry. Import tariffs limits on the quantities or total value of specific items that may be imported. Nontariff barriers is a form of restrictive trade where barriers to trade are set up and take a form other than a tariff. While export subsidies is a government policy to encourage export of goods and discourage sale of goods on the domestic market through direct payments, low-cost loans, tax relief for exporters, or government-financed international advertising. In executing barriers against imports, the nations whose exports suffer may retaliate with trade barriers of their own, creating a trade
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the
There are quite a few forms of tariffs that the government may apply based on the condition of the country’s economic welfare. The pros and cons of these forms of tariffs will be reviewed. Discussion on how these tariffs positively or negatively affects the economic stance of the country will be displayed. Tariffs such as the ad valorem, the taxing a percentage of the value of an item and the specific tariff or tax which is a set amount based on weight or sum of items. (McEachern, 2015)
considerably, from 8.3 cents to 21.5 cents. In other words, the equivalent tariff is 21.5 - 8.3 = 13.2 cents per pound, or a 159% tariff. The graph below - which is not to scale - shows how one can illustrate this import quota as an equivalent tariff._
Governments intervene in international trade through use of tariffs that are levied on both imports and exports. The government may either impose fixed tariffs that are calculated per unit of the import commodity or the ad valorem tariff that is calculated as a fixed percentage of the monetary value of the imported commodity. The government imposes high import tariffs in order to control the rate of imports by making the imports more expensive in comparison to the domestically produced substitutes. The tariffs increase the prices of goods and services thus reducing the quantity demanded (Misra and Yadav 2009). The use of tariffs is detrimental to international trade since it lowers competition and results in high prices of commodities in the markets. The tariffs discourage imports and domestic producers benefit from the higher prices and reduction in competition. The EU uses variable