Tariff vs Import Quota
Tariff and Import Quota are two International Trade & Finance concepts in AP Economics that students often mix up. In short: tariff is a tariff is a tax on imported goods that raises their price and protects domestic producers from foreign competition. Meanwhile, import quota is an import quota is a legal limit on the quantity of a good that can be imported during a period. Here is how they compare side by side.
A tariff is a tax on imported goods that raises their price and protects domestic producers from foreign competition.
It raises government revenue and helps domestic producers, but raises prices and reduces quantity for consumers, creating deadweight loss. It reduces imports and the overall gains from trade. Tariffs are a common form of trade protection.
An import quota is a legal limit on the quantity of a good that can be imported during a period.
By restricting supply, it raises the domestic price and protects domestic producers, much like a tariff but without government revenue. It reduces consumer surplus and creates deadweight loss. The price markup accrues to those holding import licenses.
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