How do an equivalent tariff and quota differ in who receives the rent?
World price opens trade; restrictions raise domestic price, transfer surplus, and destroy some gains from trade.
Follow the cause and effect
At Pw, find Qd, Qs, and imports.
For a small country, tariff price is Pw+t; quota price makes the import gap equal the cap.
Identify the quota-rent recipient before comparing welfare.
The model you are using
Conditions for this model
Small competitive country, no transport costs or externalities, and a nonprohibitive tariff.
The exam trap
Quota and tariff welfare match only when rent stays domestic and market conditions are equivalent.
Connect the reasoning to the graph
What changes
- Consumer loss splits into producer gain, revenue or rent, and two DWL triangles.
What stays fixed
Small competitive country, no transport costs or externalities, and a nonprohibitive tariff.
Keep these conditions throughout the comparison; change only what the case above specifies.
What to inspect
Identify the quota-rent recipient before comparing welfare.
Compare before and after, and locate the conclusion on the graph.
5 MINUTES · TRANSFER THE IDEA
Can you explain it without the lesson?
Explain the difference when quota licenses go to foreign exporters rather than being auctioned.