What Is A Quota?

Customs and tariff restrictions on domestic demand

A quota is a restriction the number of goods that a country can import or export during a particular period. Quotas are used by countries to regulate the volume of trade. Quotas are sometimes imposed on specific products to increase domestic production.

Quotas boost domestic production by limiting foreign competition. A quota is a sales target that a company wants a salesperson or sales team to achieve. Sales quota is often monthly, quarterly, and yearly.

The management can set sales targets. Revenue is the most common type of sales quota. Customs and tariffs place taxes on imports or exports.

There are differences between the two measures that governments impose to try to control trade. If domestic demand for something is not price-sensitive, quota restrictions are more effective than tariffs. International trade may be more disrupted by quota than tariffs.

Import and Export Quotients

Government-imposed limit on the quantity or value of goods or services that may be exported or imported over a specified period of time is known as quota. If domestic demand for a commodity is not sensitive to increases in price, quota's are more effective than tariffs. The international trade mechanism is more important than tariffs because of the effects of quota.

Quotas can be used as a coercive economic weapon. There are tariffs and import quotas. A quota permits the import of a certain quantity of a commodity at a lower rate, while quantities exceeding it are subject to a higher rate.

An import quota restricts imports. If the quantity imported is less than the quantity imported without a quota, the domestic price of the commodity may rise. The private profit from the import of commodities can be significant if the government maintains a system of licensing importers.

The Effect of Customs Duty on the Market Price

The equilibrium market price in the country will be P and with output at Q, which is the price that equates domestic demand domestic supply. The world supply curve will be elastic at the world price if the country is opened up to free trade. The new equilibrium price is P1 and the output is Q1.

The domestic share of output is now Q2, compared to self-sufficient quantity. The distance is Q2 to Q1. The welfare loss associated with a quota may be greater than a tariff because there is no tax revenue earned by the government.

Quotas are less used than tariffs. Customs duties are taxes on imported products that are levied as a percentage increase on the price of the product. One of the oldest forms of protection is tariffs.

Consumers face higher prices and there is a loss of consumer surplus. Domestic producers are protected from cheap imports and receive a higher price than they would have without the tariffs. It is likely that there is an overall net welfare loss.

The price goes up to P2 and the new output goes up to Q3. Domestic producers' share of the market goes up in Q4 while imports go down in Q4. Domestic producers have been protected from cheaper imports from the rest of the world.