Under a tariff-rate quota:
Options:
| a. the within-quota tariff rate exceeds the over-quota tariff rate b. the over-quota tariff rate exceeds the within-quota tariff rate c. the within-quota tariff rate equals the over-quota tariff rate d. the within-quota tariff rate plus over-quota tariff rate equal 100 percent |
The Correct Answer Is:
b. the over-quota tariff rate exceeds the within-quota tariff rate
Under a tariff-rate quota (TRQ), the correct answer is option b: “the over-quota tariff rate exceeds the within-quota tariff rate.”
Correct Answer Explanation: b. the over-quota tariff rate exceeds the within-quota tariff rate
A tariff-rate quota is a trade policy that combines elements of both tariffs and quotas. It establishes a two-tiered system for importing a particular good. Within the quota, a lower tariff rate is applied, while over the quota, a higher tariff rate is imposed.
This system is designed to strike a balance between protecting domestic industries and allowing for some level of international trade.
Within the quota, the lower tariff rate is set to encourage the importation of a certain amount of the designated good. This is intended to ensure a sufficient supply of the product in the domestic market. The goal is to keep prices stable and avoid shortages.
Once the quota is exceeded, any additional imports face a higher tariff rate. This is meant to discourage excessive imports that could potentially harm domestic producers by flooding the market with cheaper foreign goods. The higher tariff rate provides a disincentive for exceeding the quota.
Explanation of why the other options are Incorrect
Let’s delve deeper into why other options are not the correct options:
a. “the within-quota tariff rate exceeds the over-quota tariff rate”:
This statement is inaccurate. In a tariff-rate quota (TRQ) system, the within-quota tariff rate is intentionally set lower than the over-quota tariff rate.
The purpose of the within-quota rate is to incentivize a certain level of imports to ensure a stable supply of the designated good in the domestic market. This lower rate is meant to be more favorable to importers.
c. “the within-quota tariff rate equals the over-quota tariff rate”:
This statement is also incorrect. In a TRQ system, there are two distinct tariff rates: one for within the quota and another for over the quota. These rates are deliberately set at different levels to create a differentiation between importing within the quota limit and exceeding it.
The within-quota rate is lower to encourage a certain level of imports, while the over-quota rate is higher to discourage excessive imports.
d. “the within-quota tariff rate plus over-quota tariff rate equal 100 percent”:
This statement is not accurate. The within-quota and over-quota tariff rates are separate and not combined to equal 100 percent. The combined tariff rate will depend on the specific policy set by the governing authority.
It is possible for the total combined rate to be less than or more than 100 percent, depending on the specific TRQ policy in place.
In summary, the correct statement for a tariff-rate quota (TRQ) is that the over-quota tariff rate exceeds the within-quota tariff rate. This system is designed to strike a balance between allowing for a controlled level of international trade and protecting domestic industries from excessive imports.
The within-quota rate is lower to facilitate a certain level of imports, while the over-quota rate acts as a deterrent to prevent imports beyond the established quota limit.
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