How would you describe the main difference between import tariff and quota? Select one – the most appropriate answer.

Question

BlackTom AI · Accepted Answer

Restating the prompt to focus the analysis: the question asks for the main difference between an import tariff and a quota, and to select the most appropriate answer from the provided options.
Option present: 'In case of quota government would not receive any revenues.'
First, consider the typical distinction between a tariff and a quota. A tariff is a tax levied on imported goods; its primary effect is to raise government revenue and raise the domestic price of the imported good. A quota, by contrast, sets a legal limit on the quantity of a good that can be imported. Its primary effect is to restrict supply and raise the domestic price, but it does not automatically generate revenue for the government unless licenses tied to the quota are auctioned off or otherwise monetized.
Exploring why this option can be misleading: Under a quota, revenue to the government is not automatically zero. If the government auctions import licenses or issues licenses that have a value, it can collect revenue. If licenses are allocated for free or given through a non-revenue-generating mechanism, then revenue may be minimal or zero. Therefore the statement 'In case of quota government would not receive any revenues' is only conditionally true and not universally correct.
Additionally, the option does not capture the essence of the main difference, which is about how the policy instrument affects government revenue: tariffs generate revenue by design, while quotas do not necessarily; their revenue implications depend on license allocation.
From an analytical standpoint, the key contrast lies in revenue generation mechanism and allocation of licenses, not merely the presence of a quantity cap. The option fails to acknowledge the revenue possibility under quotas and thus is an incomplete or potentially inaccurate characterization.
In summary, while a quota can result in higher prices and restricted imports, saying that the government would not receive any revenues ignores the role of license auctions or monetized allocations. The contributing misconception is assuming quotas inherently yield no government revenue, disregarding the monetary flow from license fees or auctions. The statement therefore misrepresents the main difference between the tools and their revenue implications.
Note: The question lacks additional options for a fuller comparison, but the provided choice is misleading because it ignores the conditional revenue channel that quotas can have through license rents or auctions.

How would you describe the main difference between import tariff and quota? Select one – the most appropriate answer.

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