Import Quota- Trade Protectionism

Question 1

Import Quota — How It Works

Answer 1

Quota is a limit on the quantity of a good that can be imported.

Question 2

The effect of imposing a quota:

Answer 2

Domestic demand contracts from Qz to Q4 (less imported goods available, so total consumption falls).

Domestic supply increases from Q1 to Q3 or Q4 because domestic producers fill some of the gap.

The price rises from PW (world price) to a higher price inside the country.

Question 3

The result:

Answer 3

Consumers pay a higher price and consume less, so consumer surplus (CS) falls.

Domestic producers benefit, increasing their supply and producer surplus.

However, deadweight loss (DWL) arises because the economy produces more at a higher cost than world price efficiency.

Question 4

Arguments for Protectionism via Quotas

Answer 4

Infant Industry Protection
Helps new or emerging domestic industries grow by reducing foreign competition.

Question 5

Arguments for Protectionism via Quotas 2

Answer 5

Anti-Dumping
Protects domestic producers from foreign firms selling below cost (dumping), which could harm local businesses.

Question 6

Arguments for Protectionism via Quotas 3

Answer 6

Domestic Employment
Supports jobs in domestic industries by limiting foreign competition, although this can sometimes be inefficient.

Question 7

Arguments for Protectionism via Quotas 4

Answer 7

Improves Current Account Position
By reducing imports, it lowers import expenditure, potentially improving the trade balance.

Question 8

Low-Cost Labour Concerns

Answer 8

Protects domestic industries that can’t compete with cheap foreign labor.