Quotas

1
Quotas

• A limit of the total quantity of imports
  allowed into a country in a year.

• Somehow the Government gives out a limited
  number of licenses to imports items legally and
  prohibits importing without a license.

2
Tariffs v. Quotas
Why might Government officials and protectionist
industries prefer quotas?

• Assurance against further increases in import
• spending when foreign competition gets tougher.

• Helps officials with the BOP by assuring that
• quantity is strictly limited.

• Gives Government officials greater
  administrative
• power and flexibility.
• International Trade Agreements
• Domestic Firms

3
Small Country Quota
World
Sweden
P
P
S
c
PW1 SRW
PW1
D
D swedish imports
Q
Q
400
100
300
4
Small Country Quota
Consumers
Lose
-a -b -c -d
Sweden
Producers
P
S
Gain
a
Government
No Change
PW1
D
Q
400
100
-b -c -d
Net
5
How are quotas allocated?
1) Country Allocation

• Previous Shares

• Political Relations

2) Auction off Property Rights to Licenses

• Public or Not

3) Voluntary Export Restraint
4) Resource-using application procedures
6
Large Country Quota - Assume there are only 2
countries in the world
Japan
International Trade
U.S.
S
SJe
D
S
PW
PW
D
DUSI
Qs
Qd
Qd 6 mil.
Qs 2 mil.
7
Large Country Quota - VER
Consumers
U.S.
Lose
-a -b -c -d
S
Producers
Gain
a
PUS
a
c
b
d
Government
PW
No Change
D
Qd 4 mil.
Qs 2 mil.
Qd 3.5
Qs 2.5
-b -c -d
Net
8
Large Country Quota - VER
Consumers
Gain
e f
Japan
International Trade
Producers
Lose
-e -f -g -h -i j k
SJe
D
g
S
0
Govt.
j
PW
e
h
i
f
k
DUSI
Net
-g -h -i j k
Qs
Qd
hk
9
Large Country Quota - VER
Japan
World
U.S.
k h
j c
-b -d -g -i
Deadweight Losses
10
Large Country Quota - Auction
Consumers
U.S.
Lose
-a -b -c -d
S
Producers
Gain
a
PUS
a
c
b
d
Government
PW
k j
D
Qd 4 mil.
Qs 2 mil.
Qd 3.5
Qs 2.5
-b -c -d k j
Net
jc
11
Large Country Quota - Auction
Consumers
Gain
e f
Japan
International Trade
Producers
Lose
-e -f -g -h -i
SJe
D
g
S
0
Govt.
j
PW
e
h
i
f
k
DUSI
Net
-g -h -i
Qs
Qd
12
Large Country Quota - Auction
Japan
World
U.S.
k h
-b -d -g -i
Deadweight Losses