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Compare and contrast an import quota with an import tariff of equal magnitude. Use a diagram...

Compare and contrast an import quota with an import tariff of equal magnitude. Use a diagram to illustrate your answer. Can the government ever capture the quota rent? If so, how?

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Answer #1

In the diagram above, tariff raise world price from Pw to Pw + t while quota shift supply curve to its right to supply + quota.

Following the case, if the government is the owner of imported good, they can collect equal rent as tax revenue from tariff.

Equilibrium Tariff Quota
Quantity Demanded Q* C0 C0
Quantity Supplied Q* B0 B0
Imports - C0 - B0 C0 - B0
Consumer Surplus A A + B + E + F A + B + E + F
Producer Surplus B + C + D C + D C + D
Government Revenue - H + K + I H + K + I
Deadweight Loss - G + J G + J
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