In what ways are quotas and numerical restrictions similar yet different? Provide an example.
The primary differences between tariff and quota are explained in the below given points:
- The tariff is a tax charged on imported goods. Quota is a limit defined by the government on the quantity of goods produced in the foreign country and sold domestically.
- Tariff results in generating revenue for the country and hence, increase the GDP. As opposed to quota, is imposed on the numerical value of goods, not the amount and so it has no effect.
- With the effect of tariff, consumer surplus goes down while the producer’s surplus goes up. On the other hand, quota results in the fall of consumer surplus.
- Income generated from the collection of tariff, is the revenue of the government. Conversely, in case of quota, traders will get extra income from the collection.
Example: In Quotas South Africa can restrict India for import of cheese by saying that it (SF) can import only 4% of total consumption every financial year but in numerical restriction South Africa will put restriction on India for import of cheese by applying tax i.e. duty of 14%.