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TARIFFS,SUBSIDIARY,QUOTAS

Dr.D.Hema

Assistant Professor of economics

CPA College, Bodinayakanur.

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TARIFFS�

  • Definition: Taxes imposed on imported goods.
  • Types:
    • Ad Valorem: Based on a percentage of the import's value.
    • Specific: Fixed fee per unit.
  • Objectives:
    • Protect domestic industries from foreign competition.
    • Generate government revenue.

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ECONOMIC IMPACTS OF TARIFFS�

  • Domestic Effects:
    • Increases prices for imported goods, reducing consumption.
    • Encourages domestic production, potentially creating jobs.
  • Welfare Effects:
    • Consumer surplus decreases due to higher prices.
    • Producer surplus increases as domestic industries face less competition.
    • Net welfare loss due to efficiency reduction and deadweight loss.

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QUOTAS

  • Definition: Limits on the quantity of a good that can be imported.
  • Purpose: Protect domestic industries by restricting foreign competition.
  • Types:
    • Absolute Quota: Fixed maximum quantity.
    • Tariff-Rate Quota: Lower tariffs up to a limit, higher tariffs beyond it.

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ECONOMIC IMPACTS OF QUOTAS�

  • Domestic Effects:
    • Increases scarcity of foreign goods, leading to higher prices.
    • Protects domestic industries by limiting foreign supply.
  • Welfare Effects:
    • Creates rent (quota rent) captured by foreign producers or domestic distributors.
    • Reduces consumer surplus and results in deadweight loss.

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SUBSIDIES�

  • Definition: Financial support from the government to domestic industries.
  • Types:
    • Production Subsidies: Encourages local manufacturing.
    • Export Subsidies: Boosts exports by lowering export costs.
  • Purpose: Enhance competitiveness of domestic products in local and global markets.

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ECONOMIC IMPACTS OF SUBSIDIES

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  • Domestic Effects:
    • Reduces production costs, making domestic goods more competitive.
    • Can increase output, employment, and industry growth.
  • International Impacts:
    • May lead to trade disputes, especially with export subsidies.
    • Can distort international competition, affecting global market prices.

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COMPARATIVE ANALYSIS OF TARIFFS, QUOTAS, AND SUBSIDIES

  • Tariffs:
    • Raises government revenue; higher import prices for consumers.
  • Quotas:
    • Limits availability, often leads to quota rents; no direct revenue for the government.
  • Subsidies:
    • No direct impact on consumer prices but burdens taxpayers; enhances producer competitiveness.

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POLICY CONSIDERATIONS AND CRITICISMS

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  • Protectionism vs. Free Trade:
    • Trade barriers protect jobs but may lead to inefficiency and retaliation.
  • WTO Regulations:
    • Sets rules on tariffs, limits quotas, and regulates subsidies to prevent unfair competition.

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