Tariff/Quotas/VER

CFA Level I
#1

I can’t seem to grasp it, hope somebody will help me with this

  • under which method - the welfare in importing country is the greatest ?

  • when tariffs result in greater welfare than quota rents

  • what is the difference when quotas are captured/not captured and what does it mean

thanks

#2

Here is how I understand it:

Under both methods consumer surplus is decreased and producer surplus increased. The total welfare effect will depend upon the amount of the governmental income through the tariffs or the license income under a quota regime.

If the government does not collect the full economic value of the import licenses under a quota regime a quota will result in less economic value for the importing country compared to a tariff. The producers of the exporting country will in contrast realize a quota rent by the amount the government failed to charge the full economic value of the license.

Regards,

Oscar

#3

Great, thank you