absolute quota

Examples of absolute quota in the following topics:

• Quotas

  • Quotas are limitations on imported goods, come in an absolute or tariff-rate varieties, and affect supply in the domestic economy.
  • There are two main types of import quota: the absolute quota and the tariff-rate quota.
  • An absolute quota is a limit on the quantity of specific goods that may enter a country during a certain time period.
  • An absolute quota may also be set selectively for certain countries.
  • As an example, suppose an absolute, global quota for pens is set at 50 million.

• Defining Absolute Advantage

  • A country has an absolute advantage in the production of a good when it can produce it more efficiently than other countries.
  • Absolute advantage refers to the ability of a country to produce a good more efficiently that other countries.
  • A country with an absolute advantage can sell the good for less than a country that does not have the absolute advantage.
  • Party B has an absolute advantage in producing widgets.
  • China can produce such goods more efficiently, which gives it an absolute advantage relative to many countries.

• Promoting Free Trade

  • Government can promote free trade by reducing tariffs, quotas, and non-tariff barriers.
  • Free trade is a policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports), subsidies (to exports), or quotas.
  • Tariffs and quotas are explicit government policies that are designed to protect domestic producers, even if they are not the most efficient producers .
  • In addition to tariffs and quotas, there are a number of other barriers to free trade that countries use.
  • NTBs act just like tariffs and quotas in that they are barriers to free trade.

• Quotas

  • To prevent over-fishing, a negative externality, governments may impose individual fishing quotas (IFQs), which set an allowable catch limit for fisheries.
  • To address the problem of negative externalities, governments may use a quota system to try and limit them.
  • In a quota system, the negative externality is capped at a certain amount.
  • In the example of pollution, the government may put a quota on the amount of pollution a factory can produce by issuing tradable permits.

• Absolute Advantage Versus Comparative Advantage

  • Absolute advantage refers to differences in productivity of nations, while comparative advantage refers to differences in opportunity costs.
  • Absolute advantage compares the productivity of different producers or economies.
  • In other words, Country A has an absolute advantage in making both food and clothing.
  • Absolute advantage is important, but comparative advantage is what determines what a country will specialize in.
  • Country A has an absolute advantage in making both food and clothing, but a comparative advantage only in food.

• Evaluating Policies

  • Import Quotas: Policy makers often implement quotas in agriculture to retain more control over prices and protect domestic incumbents.
  • Quotas, like other forms of trade protection, benefit the local industry.

• Costs of Trade

  • Free trade policies consist of eliminating export tariffs, import quotas, and export quotas; all of which cause more losses than benefits for a country.

• From Protectionism to Liberalized Trade

  • At times in its history, the country has had a strong impulse toward economic protectionism (the practice of using tariffs or quotas to limit imports of foreign goods in order to protect native industry).

• Thinking about Efficiency

  • Governments can institute any number of policies that prevent markets from achieving the free market equilibrium price and quantity: taxes raise prices, quotas limit the quantity sold, and regulations affect the supply and demand curves.

• How Taxes Impact Efficiency: Deadweight Losses

  • This can happen through price floors, caps, taxes, tariffs, or quotas.