Suppose the government wants to limit imports of a certain good. Is it preferable to use an import quota or a tariff? Why?
Modification in domestic consumer and producer surpluses are similar under import quotas and tariffs. There will be a loss in (domestic) total surplus in either case. Though, with a tariff, the government can collect revenue equal to the tariff times the quantity of imports and these revenues can be again distributed in the domestic economy to offset the domestic deadweight loss by, for instance, reducing taxes. So, there is less of a loss to the domestic society like a whole. Along with the import quota, foreign producers can capture the variation among the domestic and world price times the quantity of imports. Hence, with an import quota, there is a loss to the domestic society as a whole. If the national government is trying to raise welfare, it should make use of a tariff.