Principles of Macroeconomics / Unit 17 MAC 1615 worked example, 60 to 90 seconds
Classify the Barrier
The idea
From a description, name the form of protection and say how it raises the domestic price. The test is what the measure limits directly. A tax on the imported good is a tariff. A numerical ceiling is a quota. Anything that works by making importing harder or costlier without taxing or capping it is a nontariff barrier.
In practice
A fifteen percent charge on every imported unit is a tariff, and it raises the domestic price by raising the importer's cost directly. A rule admitting no more than forty thousand units a year is a quota, and it raises the price by restricting supply until the market clears at a higher price. A requirement that each shipment be inspected at one designated port is a nontariff barrier, and it raises the price through delay and handling cost. A rule that a good may be labelled as made domestically only if its last substantial change happened there is also a nontariff measure, and producers respond by relocating the final stage to qualify.
Where people slip
The three differ in who collects the difference. A tariff's revenue goes to the government. A quota's higher price goes to whoever holds the right to import, who may be a foreign producer. A nontariff barrier's cost is often pure waste, collected by nobody at all — which makes it the most expensive of the three per unit of protection delivered.
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