CA Foundation · Business Economics · International Trade
Which of the following is the key difference between an import quota and an import tariff of the same restrictive effect on quantity?
Under a quota the government collects no duty revenue, and the price gap between domestic and world prices may go to importers holding import licences. A tariff, by contrast, is a tax that gives the government revenue. Both raise domestic prices.
- AA quota gives the government revenue, while a tariff does not
- BA tariff directly fixes a physical limit on imports, while a quota taxes them
- CUnder a quota the government earns no tariff revenue, and the price gap may go to importers holding licencesCorrect
- DQuotas raise domestic prices, while tariffs lower them
Explanation
A tariff is a tax collected by the government as revenue. A quota sets a physical limit, so no duty is collected, and the gap between domestic and world price often accrues as profit to licence-holding importers. Options A and B reverse the roles, and D is wrong since both raise domestic prices.
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