Tariffs, quotas and production subsidies
| English | 中文 | Pinyin |
|---|---|---|
| tariff/ˈtærɪf/ | 关税 | guān shuì |
| import quota/ɪmˈpɔːt ˈkwəʊtə/ | 进口配额 | jìn kǒu pèi é |
A decision you can investigate
- Domestic growers ask for protection against imported berries. The government considers a tariff 关税, an import limit or a payment per home-grown box.
- The tools change incentives and public finances differently.
Build the explanation
- A tariff is a tax on imports; a quota limits their quantity. With an available world supply, domestic demand minus domestic supply is imports at the world price. A tariff can raise the domestic price, reduce consumption and increase domestic production.
- A quota can also raise price by restricting imports, but does not automatically create tariff revenue. A domestic production subsidy lowers producers’ net costs and can expand domestic output, but uses public funds.
Work through the evidence
- In a fictional small-country market, at world price 10, domestic demand is 100 boxes and domestic supply 40: imports = 60. With a fully passed-on tariff of 2, price is 12, demand 90 and supply 50: imports = 40. Tariff receipts = 2 × 40 = 80 yuan.
- A quota of 40 can produce the same price in this schedule if demand/supply conditions are unchanged. A producer subsidy of 2 instead keeps the available world price at 10: if home supply rises to 50, imports fall to 50 and government spending is 2 × 50 = 100.
Imports after the tariff are
Demand 90 minus home supply 50 gives 40.
Tariff revenue under the stated assumptions is
Tax 2 times post-tariff imports 40 equals 80.
An import quota automatically provides the same public revenue as a tariff.
Revenue depends on how licences are allocated; a quantity limit alone is not a tax.
Test the limits
- These are stated small-country assumptions, not guaranteed outcomes under market power or changing world prices. A subsidy paid to home producers differs from an export subsidy.
- Tariffs raise input costs for import users and can provoke retaliation. Quota rents depend on licence allocation; subsidy funding has an opportunity cost. Show the particular market and incidence rather than assuming identical winners.
A subsidy of 2 on 50 home-produced boxes costs
Payment per box is multiplied by subsidized production.
Apply and explain your answer
- Why is tariff revenue 80 rather than 120 yuan after the tariff?
- The tax applies to the remaining 40 imported boxes, not the original 60.
Match the terms to their meanings.
Each term describes a specific mechanism in this lesson.
Use the terms precisely
- tariff: A tax levied on imports.
- import quota 进口配额: A limit on the quantity of a product imported.
In a fictional small-country market, at world price 10, domestic demand is 100 boxes and domestic supply 40: imports = 60. With a fully passed-on tariff of 2, price is 12, demand 90 and supply 50: imports = 40. Tariff receipts = 2 × 40 = 80 yuan. A quota of 40 can produce the same price in this schedule if demand/supply conditions are unchanged. A producer subsidy of 2 instead keeps the available world price at 10: if home supply rises to 50, imports fall to 50 and government spending is 2 × 50 = 100.
These are stated small-country assumptions, not guaranteed outcomes under market power or changing world prices. A subsidy paid to home producers differs from an export subsidy. Tariffs raise input costs for import users and can provoke retaliation. Quota rents depend on licence allocation; subsidy funding has an opportunity cost. Show the particular market and incidence rather than assuming identical winners.
A tariff is a tax on imports; a quota limits their quantity. With an available world supply, domestic demand minus domestic supply is imports at the world price. A tariff can raise the domestic price, reduce consumption and increase domestic production.