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A quota refers to the direct control of import demand, which will lower supply of imports, thus reducing quantity demand for imports. The restriction of the quantity of imported goods will create an artificial shortage that leads to the increase in price of the imported goods. Hence, there is a fall in import demand.

A quota is effective when extensive import of the good has detrimental impacts to the society, particularly demerit goods like cigarettes and alcohol. However, the imposition of quota may result in retaliation by other trading countries, in which these countries also implement trade protectionism, which will lower the world output.

The imposition of tariffs will raise the price of imported goods, such that there is a fall in quantity demanded of imports and the increase in demand for domestic goods.

Tariffs is effective when it can directly affect the output level and thus import demand. Tariffs generate government revenue which can be used to finance public projects.

Simon Ng

Founder, JC Economics & General Paper Tutor at Economics Focus
JC Economics Tutor Simon Ng of Economics Focus has been teaching A Level Economics and A Level General Paper since 2003. Simon set up Economics Focus to assist students in their pursuit of academic excellence at the examination by providing economics tuition for H1 and H2 students. JC1 and JC2 students are inspired by Simon's clear teaching methods that enabled them to comprehend economics terms and concepts. Simon developed the Rational Thinking methodology to aid students to excel in their JC economics essays and CSQs.
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