Ans. An
import quota is the simplest instrument for implementing a policy of non-tariff
barriers, Quota is not allowed under the provisions of the General Agreement on
Tariffs and Trade (GATT). But a country may justify imposition of quota by
giving the excuses mentioned above or even ban import. Such decisions may be
challenged by the exporting country in the World Trade Organization. We want to
compare the effects of a quota with that of an equivalent tariff. For this
purpose we shall use a diagram similar to Figure 4.1 except that now we assume
that the countries having trade are large countries and are capable of
influencing the world market pl-ices. It is quite easy to derive from Figure
4.1 the importing country's demand schedule for imports. This will be simply
the country's excess demand curve. In Figure 4.1 at price equal to P, there is
no excess demand and therefore the demand for import is zero. At any price less
than P, the market demand is greater than the supply and this excess demand is
the demand for import. Since the country is assumed to be an importer we do not
look at any price higher than P,. In Figure 4.2 we have drawn this excess
demand for import demand schedule marked as D. At the home country's autarky
equilibrium price P, home import is zero and import is positive at any price
less than P. As price of import falls the home demand for import rises. On the
other hand S” the foreign country's supply curve which shows that higher the
price higher is the quantity offered for export by the foreign country. The
world trade equilibrium is at the price Pp, at which the home country will
import Mf, quantities of the good and the foreign country will export the same
quantities in free trade.
Open Unit 4 in Your Ex Book for the Diagrame.
Thodi mehnat Aap bhi krlo.
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