Cambridge International as and a level Economics Ebook

Tariff : 
a tax imposed on imports or exports.
KEY TERM
Quotas
Quotas
are limits on imports. Th
e limits are usually 
imposed on the quantity of imports but are also 
sometimes imposed on the value of imports that can be 
purchased each year. Restricting the supply of imports is 
likely to drive up their price. So, as with tariff s, quotas are 
likely to disadvantage consumers as they result in them 
paying higher prices and consuming fewer products. 
Unlike tariff s, quotas usually do not raise revenue for the 
government. In this case, it is the sellers of the imports 
that will receive the extra amount per unit paid by 
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Chapter 4: The macroeconomy 
consumers. In some cases, however, licences are sold to 
foreign fi rms to sell some allocation of the quota.
Quota: 
a limit on imports or exports.
KEY TERM
Exchange control
Instead of limiting the imports directly, a government may 
place limits on the amount of foreign exchange that can be 
purchased in order to buy imports, travel abroad or invest 
abroad. Th
is is known as 
exchange control
.
Exchange control: 
restrictions on the purchases of foreign 
currency.
KEY TERM
Export subsidies
Subsidies may be given to both exporters and to those 
domestic fi rms that compete with imports. In both cases 
domestic fi rms will, in eff ect, experience a fall in costs. 
Th
is will encourage them to increase their output and 
lower their price. Th
is may enable them to capture more of 
the markets at home and abroad.
Th
e losers will be the foreign fi rms and domestic 
taxpayers. Domestic producers will gain. Consumers will 
also benefi t in the short run. In the long run, however, they 
may lose if the more effi
cient foreign fi rms are driven out 
of business and the subsidised domestic fi rms raise their 
prices.