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Import quota elimination

Chinaâ??s entry into the World Trade Organization (WTO) is likely to create more competition between local and foreign firms, as well as provide China greater access to the market of exports. This is particularly true in the market for rubber since China is the worldâ??s second largest consumer of rubber. According to the WTO, China plans to eliminate its import quota on rubber over the next five years. What impact is the import quota reduction likely to have on the price of rubber and the quantity of rubber exchanged in China? What implications will the elimination of the quota on rubber have on Chinaâ??s social welfare?

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Import quotas limit the import of a particular product. Once the limit is reached, no additional rubber can be imported. This has the effect of driving up domestic prices. Domestic rubber producers can charge a higher price than they could otherwise as long as there is sufficient demand. Those needing the rubber must will bid up the ...

Solution Summary

How the elimination of an import quota affect prices and quantities sold.