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A production quota is a goal for the production of a good. It is typically set by a government or an organization, and can be applied to an individual worker, firm, industry or country. Quotas can be set high to encourage production, or can be used to restrict production to support a certain price level.


What is a quota?

A quota refers to a measure that limits, either minimum or maximum, on a particular activity. Quotas are usually enacted by governments or organizations to protect domestic industries. In short, it limits the number of goods a country can export or import during a certain period of time.


Criticism

Quotas, like other trade restrictions, are typically used to benefit the producers of a good at the expense of consumers in that economy. Possible effects include
corruption Corruption is a form of dishonesty or a criminal offense which is undertaken by a person or an organization which is entrusted in a position of authority, in order to acquire illicit benefits or abuse power for one's personal gain. Corruption m ...
(bribes to increase a quota allocation) or
smuggling Smuggling is the illegal transportation of objects, substances, information or people, such as out of a house or buildings, into a prison, or across an international border, in violation of applicable laws or other regulations. There are variou ...
(concealed actions to exceed a quota). Quotas disrupt normal business cycles and do not help innovation. While it may seem like a good idea for producers to enact a production quota, it has long-term negative consequences. Customers will often try to find alternative solutions. In the case of oil, people will either purchase different natural energy sources or work towards finding renewable energy sources. Quotas also create deadweight loss. When a production quota has been added, there is a loss in consumer surplus and creation of deadweight loss. This triangle is also known as the ‘ Harberger Triangle’.


Examples


Crude oil

* Oil production by
OPEC The Organization of the Petroleum Exporting Countries (OPEC, ) is a cartel of countries. Founded on 14 September 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela), it has, since 1965, been headqua ...
The Organization of the Petroleum Exporting Countries (OPEC) is a key example of an organization that uses production quotas. The 14 member states set a production quota for
crude oil Petroleum, also known as crude oil, or simply oil, is a naturally occurring yellowish-black liquid mixture of mainly hydrocarbons, and is found in geological formations. The name ''petroleum'' covers both naturally occurring unprocessed crude ...
. This "maintains" the cost of crude oil per barrel in world markets.


Agricultural produce

*
Common Agricultural Policy The Common Agricultural Policy (CAP) is the agricultural policy of the European Union. It implements a system of agricultural subsidies and other programmes. It was introduced in 1962 and has since then undergone several changes to reduce the ...
by the
European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are located primarily in Europe, Europe. The union has a total area of ...
*Agricultural Policy of the United States during the Great Depression During the
Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
, many production quotas were implemented. The purpose was to restrict the levels of production below competitive levels, which would increase the producer's income. This was important when the price of agricultural products in the global markets had taken a dramatic decline.Hurt, R D 2002, Problems of Plenty: The American Farmer in the Twentieth Century, Chicago, Ivan R. Dee.


Other

*A 10-percent increase in production quotas for construction workers triggered the Uprising of 1953 in East Germany.


See also

*
Import quota An import quota is a type of trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time. Quotas, like other trade restrictions, are typically used to benefit the producers ...
*
Individual fishing quota Individual fishing quotas (IFQs), also known as "individual transferable quotas" (ITQs), are one kind of '' catch share'', a means by which many governments regulate fishing. The regulator sets a species-specific total allowable catch (TAC), typical ...
*
Planned economy A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, ...


References


External links


The Stalin Model for the Control and Coordination of Enterprises in a Socialist Economy
{{Authority control Price controls Quotas