Question

Why is a quota more detrimental to an economy than a tariff that results in the same level of imports as the quota? What is the net outcome of either tariffs or quota for the world economy?

Short answer

The government loses tax revenue under quota than a tariff that results in the same level of imports as the quota.

The net outcome of either tariffs or quotas for the world economy is that it loses efficiency.

Step-by-step solution

Step 1. Tariff and quota

A tariff is a tax that the domestic government imposes on the goods and services imported. Quota is a restriction put on the number of imported goods. The quota is more detrimental than the tariff when the level of imports is the same as the quota. The government incurs a loss in earning, because tariffs are a source of government revenue.

Step 2. Net outcome of either tariff or quota

The tariff or quota results in imposing costs for domestic consumers, and it gives profit to domestic producers and the government from tariff revenue. The cost to the domestic consumer is seen from the change in prices of the product. Different studies have concluded that the cost to the consumer is more than the gains to the domestic producers and government; thus, generous cost or loss in efficiency results from trade protection.

There is a loss in efficiency to the entire world if every economy loses efficiency.