ACCA Applied Knowledge · Business and Technology · Political and legal factors affecting business
Zenta Ltd imports components. The government imposes a quota limiting the quantity of such components that can be imported, instead of a tariff. Which of the following is a correct difference in the impact of a quota compared with a tariff?
A quota limits the physical quantity of imports, while a tariff is a tax that raises the price of imported goods. Tariffs generate tax revenue for government, and both are protectionist measures that restrict free trade.
- AA quota raises revenue for the government, whereas a tariff does not
- BA quota places a physical limit on volume, whereas a tariff raises the price of imports through a taxCorrect
- CA quota applies only to exports, whereas a tariff applies only to imports
- DA quota encourages free trade, whereas a tariff restricts it
Explanation
A quota is a restriction on the quantity of goods imported, whereas a tariff is a tax that increases the price of imports. Tariffs generate government revenue; quotas generally do not, unless licences are sold. Both are protectionist and both can apply to imports, so the other statements are wrong.
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