Workpoint 22.5

A quota- Physical limit on the trade imposed by the government. Restriction on the import numbers of certain good or services that are to be ordered in a given time period. Quotas are used to restrict international trader's access to the domestic market to benefit domestic producers and allowing them to become more dominant on the market. 

When a quota is imposed there are always losers and winners: 

winners: domestic producers, other foreign consumers,

Losers: domestic consumers, foreign producers,

• Winners:
• domestic producers- before the quota was introduced, they had to sell their goods at the world price, which is way lower than they would like to sell at. Therefore domestic producers only supplied at the quantity 0-Q1, and got the revenue of a. Now after the quota has been imposed, the price rises to Pquota, foreign supply is limited, yet the demand doesn't change they will sell more and therefore earn more. Domestic suppliers therefore demand 0-Q1 and Q3-Q4, and their new revenue is a+c+d+f+i+j.
  
  
• Other foreign consumer- As the quota is imposed, the country that the textile was imported from now has a surplus of textile and has to find a new market to export to. Or they might try to sell the textile in their home country with a lower price just to sell some. Yet as textile isn't a good that spoils really, they aren't in a hurry to sell it.
  
  


• Losers:
• domestic consumers- Governments decision to impose quotas will cause the price of goods to increase from the world price to Price quota. Therefore make textile more expensive for domestic consumers to buy. As before the demand was at Q2, yet has now dropped to Q4. And that brings us the loss of consumer surplus k, as the wheat is not purchased - a dead-weight loss. 
  
• foreign producers- Before the implication of the quota foreign producers were dominating the market and selling at the world price. Before they were providing the textile quantity from Q1-Q2, and earning the revenue of b+c+d+e. After the quota they are only allowed to supply the quantity of Q1-Q3, yet they also earn the revenue of the Pquota; b+g+h. Usually a fall in income but doesn't have to be, yet there is a surplus of textile for them to sell somewhere else now as they lost some of their market.