Suppose that domestic personal computer firms complain to Congress that cheap exports are driving them out of business. Congress, worried about job losses, decides to restrict trade, and is considering either a tariff or a quota on imported personal
computers. a . Explain which Congress will choose if it wants to restrict trade, yet please importers. b. Explain which Congress will choose if it wants to use the restriction as a source of revenue. c. How do tariffs and quotas differ?
a . A quota will be chosen because the difference between the domestic price and the world price of the
imported good doesn't change.
b. A tariff will be chosen because a tariff is a tax, which the government receives as revenue.
c. Tariffs raise the price of imports, making the domestic good more attractive to domestic consumers.
Quotas limit the quantity of imports, forcing domestic consumers to buy more of the domestic good
than they otherwise would.
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