Why is it better to protect an infant industry with monopoly power with a tariff than a quota? A tariff causes domestic production to increase, whereas a quota causes production to decrease . “Infant industry protection” refers to: countries’ use of short-term protection to protect young industries while they mature.
Will a home monopolist prefer a quota or a tariff to protect its market explain why?
A)The home monopolist will prefer a quota, because a quota may allow it to earn higher profits than a tariff . ... When a country imposes a tariff to protect a domestic monopolist from international competition, the monopolist will produce _______ output and charge _______ if the domestic industry was perfectly competitive.
Does a tariff imposing country gain or lose when it imposes a tariff on imports from a foreign monopolist?
Thus a tariff can raise national welfare when the market is supplied by a foreign monopolist. One reason for this positive effect is that the tariff essentially shifts profits away from the foreign monopolist to the domestic government.
What will happen to profits and domestic prices when a quota is used to protect a domestic monopolist from international competition?
1. What will happen to profits and domestic prices when a quota is used to protect a domestic monopolist from international competition? A. Profits will fall; domestic prices will fall.
Why might a monopoly firm in an exporting country choose to charge a lower price in its export market than in its local market?
Why might a monopoly firm in an exporting country choose to charge a lower price in its export market than in its local market? A monopoly firm has pricing power and hence can engage in price discrimination in different markets to maximize profit .
Is tariff better than quota?
The effects of tariffs are more transparent than quotas and hence are a preferred form of protection in the GATT/WTO agreement. A quota is more protective of the domestic import-competing industry in the face of import volume increases. A tariff is more protective in the face of import volume decreases.
What is the difference between a tariff and a quota?
The difference between an import tariff and an import quota is relatively simple – a tariff is an amount that the importer needs to pay based on a percentage of the value of the goods. ... A quota is a quantitity of goods that may be imported. This merely restricts the quantity of goods that may be imported.
Why tariffs are bad for the economy?
Tariffs can have unintended side effects. They can make domestic industries less efficient and innovative by reducing competition . They can hurt domestic consumers since a lack of competition tends to push up prices. They can generate tensions by favoring certain industries, or geographic regions, over others.
Who benefits from a tariff?
Tariffs mainly benefit the importing countries , as they are the ones setting the policy and receiving the money. The primary benefit is that tariffs produce revenue on goods and services brought into the country. Tariffs can also serve as an opening point for negotiations between two countries.
Why is there deadweight loss with a tariff?
When a tariff is imposed the volume of imports shrinks. The cost to the economy is a loss of consumer surplus, as consumers have to pay higher prices to get products that they previously imported at lower prices. ... But part of the loss from the tariff is never recovered , and that is the deadweight loss.
Who gets the quota rent?
Quota rent is the economic rent received by the owner of the imported good that is subject to the quota. To calculate quota rent, first calculate the economic rent, which is the positive difference between the domestic price of the good and the free market price from around the world.
What is the effect of a quota on consumers?
Import quota effects on the importing country’s consumers. Consumers of the product in the importing country suffer a reduction in well-being as a result of the quota. The increase in the domestic price of both imported goods and the domestic substitutes reduces the amount of consumer surplus in the market.
Are the effects of a tariff and a quota equivalent if the domestic industry is perfectly competitive?
The tariff and quota are no longer equivalent in their effect . The quota fully insulates the monopolist from external competition, no matter what happens. The monopolist protected by a tariff however, must still contend with the world price decrease, it will reduce their ability to influence the domestic price.
What are three problems with trade restrictions?
What are three problems with trade restrictions? What are three reasons often given for trade restrictions? Problems are higher prices for consumers, lower number of imports, and deadweight loss incurred. Three reasons for trade restrictions are National security, Infant industry argument, anti-dumping .
What is the most ideal type of market structure?
Perfect competition is an ideal type of market structure where all producers and consumers have full and symmetric information, no transaction costs, where there are a large number of producers and consumers competing with one another. Perfect competition is theoretically the opposite of a monopolistic market.
How does a monopoly generally transfer income?
It has been argued that in general, a monopoly transfers income from consumers to the owners of the monopoly . This is because: ... a monopolist charges a lower price for its product as compared with perfect competition. monopoly increases the efficiency of the market.
