Discuss the below:
Under the most recent GATT/WTO agreement countries have agreed to replace trade distorting policies such as import quotas with equivalent tariffs ( equivalent meaning the tariff produces the same prices and trade volumes in the importing and exporting countries as the quota), a process referred to as tariffication. The tariffs will eventually be phased down.
Using the three graph framework, analyze the welfare effects on all affected groups of replacing an import quota with anequivalenttariff. Note that a tariff is just a fixed percentage tax on imports, i.e., it does not vary with market conditions as does the variable levy. Also note that the instigating country must be an importer.
Which policy (quota or tariff) result in the least domestic price volatility in the face of changes in market conditions and climate variations from the perspective of the instigator country?
Which policy (quota or tariff) results in the least domestic price volatility in the face of changes in market conditions and climate variations from the perspective of the reactor countries (rest of the world).