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

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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 the quota.
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 both Indian and Chinese toys compete on an equal footing in the Indian market, which leads to healthy competition and improves the quality of toys. Second, if Chinese toys were restricted, Indian manufacturers would be tempted to lower their rates and increase prices in the absence of competition. On the other hand, if there are no quota restrictions, then the Indian market will be full of Chinese toys, thus reducing the sales of Indian producers, leading to the closure of toy industries and a rise in unemployment.

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