The Non‐Equivalence of Tariffs and Quotas: An Extension

Abstract

Casas and Choi (1985) suggest that a quota imposed exactly at the free trade level of imports could affect domestic prices and quantities in the presence of monopoly. They state (pp. 56–57): “An interesting corollary of this analysis is that an import quota set equal to the free trade volume of imports will be ineffective (i.e. non‐binding) but not redundant when the import competing industry is monopolised. In particular, such a quota would result in a higher domestic price and lower domestic output and consumption than under free trade.” This note extends the discussion in Casas and Choi by showing that an import quota may not be redundant even if it is set at a level greater than the free trade volume of imports. This possibility is shown to arise in both the small country and large country cases.