If politicians decide to proceed with protection, why might economists prefer tariffs to quotas? Explain at least three reasons
What will be an ideal response?
I would expect my students to address the following:
? The greater welfare loss from quotas since quota permits are not generally sold
? The inability of quotas to respond to increases in domestic demand except through higher prices and increased producer surplus. With tariffs, the volume of imports simply adjusts to changing market conditions and market prices are less volatile.
? Tariffs are more transparent and probably less costly to administer.
? Tariffs favor the most efficient foreign producers. They don't arbitrarily limit entry or discourage innovation by foreign firms (but they do for domestic firms, meaning we are creating a situation that rewards foreigners for being innovative and efficient, something not in the long run best interests of domestic firms).
You might also like to view...
Figure 4.5 illustrates a set of supply and demand curves for hamburgers. An increase in demand and an increase in quantity supplied are represented by a movement from
A) point b to point d. B) point d to point a. C) point c to point d. D) point b to point a.
Refer to Scenario 3. The average variable cost of producing three units of output is:
A) $15. B) $25. C) $41.67 (approximate). D) $75.
Capital, K, includes
A) money. B) machinery. C) business loans. D) know-how.
The short-run market supply curve is:
a. the horizontal summation of each firm's short-run supply curve. b. the vertical summation of each firm's short-run supply curve. c. the horizontal summation of each firm's short-run average cost curve. d. the vertical summation of each firm's short-run average cost curve.