Tariff and quotas

Some industries and people benefit from tariffs and others lose. This may be understood through exploring why economic policies often benefit small group at the expense of large ones. The benefit from tariffs is more visible than losses. Since the cost of the tariff is distributed widely, one cannot value the cost of the policy. The benefits from the tariff are vividly visible but cost are mostly hidden hence will often appear as if tariffs have no cost. By understanding this concept, we can see clearly why many governments policies enacted harm the economy (Frank, 2008). 

A foreign tariff increases the cost the domestic producers which leads them to sell fewer products in those particular foreign markets. Producers reduce production as a result of the decreased demand which leads to decreased employment. The reduced employment will have an impact on other sectors of the economy the demand of the consumer products decrease due to the decreased employment level. Foreign tariffs and other market restrictions cause a reduction in the economic health of a country.

Tariffs hurt the economy that imposes them since their cost is greater than their benefits. Domestic producers face reduced competition in the home market which causes the market prices to increase and also the sales of domestic producers increase. The increase in price and production causes an increase in employment which leads to a rise in consumer spending. The tariffs increase revenue for government that benefits the economy.

A tariff is a tax imposed policy by government on most imports coming into a country. The cost of the tax is directly imposed on to the consumer by way of increasing prices. The increased prices have inflationary effects to the economy. A quota is where the government sets the limit on the quantity of a product that can be imported into the country.  For quotas, it helps in protecting the domestic producers of a particular country from foreign competition but on the other hand without competition the consumers are exploited by the providers of products and services.

Generally tariffs and quotas are ways by which a country tries to protect its domestic producers from stiff foreign competition and try and increase total consumption of it domestic goods. For a small country, it is advisable to use quotas since the country may not be capable of producing every product it needs and at the same time it would not be rational for it to import everything since in the long-run it will want to encourage domestic production (Campbell, 1997). Quotas utilization hence is the right avenue for small countries.

References

Campbell McConnell (1997) Economics: principles, problems, and policies, New York: McGraw hill press

Frank O'Hara (2008) Introduction to Economics, New York: John Wiley and sons publishers

Hardwick, P. (2002) Introduction to modern economics, New Jersey: Prentice hall publishers