Question

Suppose that Italy wants to reduce imports of pasta. Would economists typically recommend the use of a tariff or quota, assuming that both policies would reduce imports by the same amount? Explain your answer.

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Answer 1

Economists would typically recommend tariff due to the following reasons:

1. Tariffs are more transparent than quota. There is not only less chance of corruption but also every unit accounted for under tariff.
2. Government earns revenues from tariff, but nothing from quota.
3. As quotas are more protective than tariffs, they provide less opportunity for sellers to export which results in increased price for all consumers. On the other hand, under tariff, consumers can buy more albeit at higher prices. Under Quotas, consumers do not have more goods at their dispobeyond a certain limit.