What is a Quota? - Definition & Example Video

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  • 0:00 What Is a Quota?
  • 1:25 Two Types of Quotas
  • 2:55 Lesson Summary
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Lesson Transcript
Instructor: Tara Schofield
This lesson explains what quotas are and looks at two types: absolute quotas and tariff-rate quotas. See how each is used by looking at examples of products that may be regulated by quotas.

What Is a Quota?

A quota is the limit established by the government to regulate the number and/or value of goods and services that are imported from other countries or exported from a country in a designated timeframe. The ultimate goal of a quota is to encourage more products to be made within the home country and import fewer products from other countries. This encourages domestic production of services that will be used by citizens of that country. It also helps limit the extent of reliance a country has on another country for productions of its items.

Quotas are important in helping a country become more self-sufficient, relying less on imports and creating more of their needed products and services domestically. They also help to protect jobs and productivity within a country, ensuring that more manufacturing and production happens within a home country than in another country.

One important reason quotas are put in place is to maintain strength in American manufacturing. If Americans become reliant on another country for the majority of a certain product and that country has a dispute with the U.S. or holds the item as leverage, it can make the United States dependent on that country for those products. However, if limits are applied, it ensures we maintain our ability to produce products and remain independent should anything change with the relationship or inventory levels with the supplying country.

Two Types of Quotas

Quotas serve several functions. They limit the number of products allowed to be brought into the country, and they also regulate taxes charged on imports. There are two specific types of quotas that apply to these purposes.

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