Posted in Finance, Accounting and Economics Terms, Total Reads: 408
Quota is the Government restriction on the amount and the value of goods and services which is imported and exported during a tie period. Quota is a practice followed in international trade and thereby regulates the volume of trade in between countries. In order to increase domestic production and restricting foreign competition, quota is sometimes imposed on specific goods and services.
Tariffs and quotas are conceptually different. Tariff imposes a tax on the products in and out of the country.
Marketing quotas refer to limits on the production of some crops. There is a penalty for farmers who breach this rule i.e. produce more than the limits. Marketing quotas effectively guarantee a minimum price for some crops. Marketing quotas are primarily introduced to guarantee the domestic production of the crops which are of high value. The Government believes that if they produce more than the amount the farmers will not receive enough monetary incentives. Marketing quotas are primarily kept to boost rural economies. The disadvantage of quotas is that it costs consumers abundant money since they have to pay extra for the quota products. They also upset normal business cycles.
For example: USA has quotas on tobacco and peanuts.