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An importer has obtained a tariff-rate quota (TRQ) into the exporting country of some fixed quantity,...

An importer has obtained a tariff-rate quota (TRQ) into the exporting country of some fixed quantity, the received profit will decrease when the new agreement increases the total TRQ by 5%. T/F. Why? Thanks.

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Answer #1

Answer- The anove statement is TRUE. Quotas are referred to as restrictions on the quantity of goods that can be imported and hence it generates no profits for the hoverment of that respective country. While tariff on the other hand is the restriction on the prices ie., the inporter has to pay some kind of tax on the goods imported. Thus, if quotas are raised by 5% then the importer would impoter further lesser quantity than he or she was importing before imposition of increase in TRQ by 5%. And this will reduce the profits of the importer as lesser quantity of goods will be imported.

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