Question

What is import quota? Why do some governments use it instead of just using tariff to restrict imports by the same amounts? Is it because quota brings a bigger national gain than tariff?

Answer 1

Import quota is the amount of imports that can be brought into a particular country for a given time period. Import quota protects domestic producers from foreign manufacturers. It can increase the price of domestic goods and may cause retaliation by other nations by imposing tariff to our exports. Such quota reduces the economic welfare of the country. For example :- Canada can limit the import of U.S cars to 3 million per year.

Some government use import quota instead of tariff as it is much effective in limiting the imports by other countries. Sometimes the demand for goods is not price senstive , import quota can be used as barrier to imports by other nations when tariff is not effective. It can used as coercive economic weapon applied to selective nations.

Government uses import quota to protect vulnerable domestic producers to foreign manufacturer not because it gives bigger national gains than tariffs. It limits the quantity or monetary value of goods / commodities of imported goods into the country.