Question

For a small country consider a quota and an equivalent tarrif that permit the same initial level of imports. The market is competitive and the government uses fixed favouratism to allocate the quota permits, with no resources expected in the process. There is now an increase in domestic demand . If the tarrif rate is unchanged , and if the quota quantity is unchanged are the two still equivelant? ( explain) show this using a graph.

Answer 1

Difference is that quotas restrict quantity while tariff works through prices. quota is a quantitative limit through imports.

Yes domestic demand increase if government uses fixed favouratism to allocate the quota permits, quota means particularly quantity is imported of commodity, if particularly quantity not fulfill domestic Need' automatically demand for domestic product rises

After quota restrictions quantity supplied q2, q3

Effect of tariff earlier Q1to Q4 supplied

Now q2, q3

And tariff increases price of product, if government uses fixed favouratism to allocate tariff that also rises demand for goods whether tariff unchanged price. Tariff increase price that decrease demand and demand for domestic product rises.