Welfare Loss from Import Quotas

In this revision video we work through the possible welfare losses from the introduction of import quotas.

An import quota is a limit on the number / volume of imports that can be brought into a particular country in each time period.

Sometimes a government introduces a tariff-free quota. This limits how many imports can be brought into a country before an import tariff is applied.

With import quotas, there is a net welfare loss to society because the increase in producer surplus is outweighed by the decline in consumer surplus. Consumers pay higher prices which can then damage their real living standards. Quotas can also limit consumer choice and create artificial shortages.