Assume the government desire to limit imports of a certain good. Is it preferable to use an import quota or a tariff? Why?
Changes in domestic consumer & producer surpluses are the 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 equivalent to the tariff times the quantity of imports and these revenues can be redistributed into the domestic economy to offset the domestic deadweight loss by, for instance, reducing taxes. Therefore, there is less of a loss to the domestic society as a whole. Along with the import quota, foreign producers can capture the difference between the domestic and world price times the quantity of imports. Thus, with an import quota, there is a loss to the domestic society as a whole. If the national government is attempting to increase welfare, it should use a tariff.