What are Quotas?

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When the government places a limit on the number of goods that can be imported, it is known as Quotas.

When the government places a limit on the number of goods that can be exported, it is known as Quotas.

Both 1 and 2

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answer is A.

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Detailed Solution

When the government places a limit on the number of goods that can be imported, it is known as Quotas. This can be explained through an example of Chinese toys. In the case of Chinese toys, quotas are used as trade barriers in three ways. First, quotas are used so that Indian and Chinese toys compete on an equal footing in the Indian market. It leads to healthy competition, and the quality of toys improves. Second, if Chinese toys were restricted, Indian manufacturers would be tempted to lower their rates and increase prices without competition. On the other hand, if there were no quota restrictions, then the Indian market would be full of Chinese toys, thus reducing the sales of the Indian producer, leading to the closure of toy industries and a rise in unemployment.

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