Trade Restrictions

[Mizi]

Quota rents arising from the imposition of a quota on imports may be captured by:

1. Domestic importers only.
2. Foreign exporters only.
3. Domestic importers or foreign exporters.

Answer: C
Quota rents arising from a quota can be captured by the exporting country or the importing country.
Should’nt it be domestic producer/exporters since domestic consumers/importers lose out from all trade restricitions

 

[BullishBear]

A quota increases the price of the imported good. This benefits:

• the foreign exporters since they can sell their products at a higher price.
• licensed domestic importers if they can capture the quota rent by buying the product at the global price (which is lower) and selling the product at the domestic price (which is higher).
• domestic producers since they will increase their production and sell more goods at the higher price.

On the other hand, the following are worse off:

• consumers as they face higher domestic prices.
• the domestic government if the importing licences were simply handed out for free, rather than being auctioned off. Unlike a tariff, the government does not collect any revenue from the sale of the goods at the higher prices.