A tariff is usually an import duty placed on foreign goods to make them more expensive in a national market; this theoretically has the effect of increasing the competitiveness of national industries.
A quota is a set quantity of material which must be delivered, produced, or acquired in order to fill a requirement. If a garment factory owner mandates that his workers produces 20 garments per day, the workers have a 20-garment quota.
Tariffs and quantities restrictions (commonly known as import quotas) both serve the purpose of controlling the number of foreign products that can enter the domestic market. There are a few reasons why tariffs are a more attractive option than import quotas.
Three Reasons Why Tariffs Are Preferable to Quotas:
Tariffs Generate Revenue for the Government: * If the U.S government puts a 20% tariffs on imported Indian cricket bats they will collect $10 million dollars if $50 million worth of Indian cricket bats are imported in a year. * That may sound like small change for a government, but given the millions of different goods, which are imported into a country, the numbers start to add up. * The Progressive Policy Institute has found that the United States collects 20 billion dollars a year in tariff revenue. This revenue would be lost to the government unless their import quota system charged a licencing fee on importers.
Import Quotas Can Lead to Administrative Corruption: * This gives the customs officials a lot of power as they can now give access to favoured corporations and deny access to those who are not favoured. * This can cause a serious corruption problem in countries with import quotas as the importers chosen to meet the quota are the ones who can provide the most favours to the customs officers.
* A tariff system can achieve the same objective without the possibility of corruption. The tariff is set at a level which causes the price of the cricket bats to rise just enough so that the demand for cricket…