A small country initially has free trade in motorcycles, it has one local motorcycle producer, and imports account for over half of local motorcycle sales. The government has decided to impose a tariff of 20 percent, aimed to reduce motorcycle imports by about a third.
The local producer proposes that a quota equal to two-thirds of the free-trade level of imports be imposed instead of the tariff because the quota will benefit the country by providing certainty about the import quantity. You are employed in the Ministry of the Economy and have been asked to provide a briefing on whether the government should use a tariff or a quota. What will you say in your presentation?