Do you think the introduction of import tariffs is likely to have a greater effect than the introduction of import quotas on an exporting business? Justify your answer.
CAMBRIDGE
O level and GCSE
Year Examined
May/June 2021
Topic
International Trade
👑Complete Model Essay
Introduction
Both import tariffs and import quotas are protectionist measures used by governments to regulate international trade, but they impact exporting businesses differently. This essay will argue that while both measures present challenges, import quotas are likely to have a more significant effect on an exporting business than import tariffs.
Impact of Tariffs
Import tariffs are taxes imposed on goods imported from other countries. This increases the price of imported goods, potentially making them less competitive compared to domestically produced goods. For exporting businesses, this could result in decreased demand and lower sales revenue. For instance, if a Japanese car manufacturer faces a high import tariff on cars exported to the US, American consumers might opt for cheaper American-made cars, impacting the Japanese firm's sales.
Faced with tariffs, businesses have two main options. Firstly, they could absorb the increased cost themselves, reducing their profit margin. Alternatively, they could pass the cost onto consumers by increasing prices, which could lead to lower demand and reduced sales volume.
Impact of Quotas
Import quotas are physical limits set on the quantity of specific goods that can be imported into a country. This directly restricts the amount an exporting business can sell in that particular market. For example, if the US imposes a quota on the number of smartphones imported from China, Chinese smartphone manufacturers would have a limited market share in the US, regardless of demand.
This restricted access to a market can force businesses to find new markets for their products, which may not be as profitable or easy to penetrate. Additionally, they may face increased storage costs for unsold inventory and potential losses if they are unable to sell their full production capacity.
Comparison and Conclusion
While both tariffs and quotas can negatively impact exporting businesses, quotas present a more significant challenge. Tariffs, even when leading to price increases, still allow exporting businesses to operate in the market, giving them a chance to compete and maintain a market presence. Conversely, quotas impose a hard limit on sales volume, directly restricting an exporting business's ability to operate in a market and generate revenue.
In conclusion, while both tariffs and quotas create obstacles for exporting businesses, quotas have a greater potential to disrupt operations and limit growth due to their direct restriction on sales volume. For exporting businesses, navigating the complexities of international trade often involves adapting to a range of protectionist measures, but quotas present a more significant hurdle to overcome than tariffs.
**Sources:** * Sloman, J. (2016). Economics for Business. Pearson Education Limited. * Parkin, M. (2019). Economics. Pearson Education Limited.Do you think the introduction of import tariffs is likely to have a greater effect than the introduction of import quotas on an exporting business? Justify your answer.
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Introduction
Both import tariffs and import quotas are protectionist measures used by governments to regulate international trade, but they impact exporting businesses differently. This essay will argue that while both measures present challenges, import quotas are likely to have a more significant effect on an exporting business than import tariffs.
Impact of Tariffs
Import tariffs are taxes imposed on goods imported from other countries. This increases the price of imported goods, potentially making them less competitive compared to domestically produced goods. For exporting businesses, this could result in decreased demand and lower sales revenue. For instance, if a Japanese car manufacturer faces a high import tariff on cars exported to the US, American consumers might opt for cheaper American-made cars, impacting the Japanese firm's sales.
Faced with tariffs, businesses have two main options. Firstly, they could absorb the increased cost themselves, reducing their profit margin. Alternatively, they could pass the cost onto consumers by increasing prices, which could lead to lower demand and reduced sales volume.
Impact of Quotas
Import quotas are physical limits set on the quantity of specific goods that can be imported into a country. This directly restricts the amount an exporting business can sell in that particular market. For example, if the US imposes a quota on the number of smartphones imported from China, Chinese smartphone manufacturers would have a limited market share in the US, regardless of demand.
This restricted access to a market can force businesses to find new markets for their products, which may not be as profitable or easy to penetrate. Additionally, they may face increased storage costs for unsold inventory and potential losses if they are unable to sell their full production capacity.
Comparison and Conclusion
While both tariffs and quotas can negatively impact exporting businesses, quotas present a more significant challenge. Tariffs, even when leading to price increases, still allow exporting businesses to operate in the market, giving them a chance to compete and maintain a market presence. Conversely, quotas impose a hard limit on sales volume, directly restricting an exporting business's ability to operate in a market and generate revenue.
In conclusion, while both tariffs and quotas create obstacles for exporting businesses, quotas have a greater potential to disrupt operations and limit growth due to their direct restriction on sales volume. For exporting businesses, navigating the complexities of international trade often involves adapting to a range of protectionist measures, but quotas present a more significant hurdle to overcome than tariffs.
**Sources:** * Sloman, J. (2016). Economics for Business. Pearson Education Limited. * Parkin, M. (2019). Economics. Pearson Education Limited.Extracts from Mark Schemes
Do you think the introduction of import tariffs is likely to have a greater effect than the introduction of import quotas on an exporting business? Justify your answer.
Points to consider:
Tariffs:
- May lead to an increase in the price of goods, making them more expensive and less competitive, which can result in fewer sales and less revenue. - A business may decide to maintain prices or not pass on the price increase to customers, reducing their profit margin.
Quotas:
- Will limit the amount of goods that can be brought into a country, reducing supply and potentially sales/revenue. - Businesses may have to find new markets for remaining products or store leftover inventory, leading to increased storage costs and total cost.
Decision:
Quotas will limit the amount of goods that can be brought into a country, which reduces supply. Tariffs, on the other hand, could increase the price of goods, leading to lower demand. In this case, quotas could significantly reduce or restrict the possibility of any sales compared to tariffs.
I think tariffs are likely to have a lesser effect because businesses can still export the amount they want even with increased prices, and customers may still be willing to pay the extra cost. In contrast, quotas could severely limit the potential for sales altogether, making them potentially more detrimental to an exporting business.