A production quota is a goal for the

production Production may refer to: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the outline of industrial organization, the act of making products (goods and services) * Production as a stati ...

of a

good In most contexts, the concept of good denotes the conduct that should be preferred when posed with a choice between possible actions. Good is generally considered to be the opposite of evil and is of interest in the study of ethics, morality, ph ...

. 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 (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 Petroleum is a fossil fuel that can be drawn from beneath the earth's surface. Reservoirs of petroleum was formed through the mixture of plants, algae, and sediments in shallow seas under high pressure. Petroleum is mostly recovered from oil dri ...

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 headquart ...

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 political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...

*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 The East German uprising of 1953 (german: Volksaufstand vom 17. Juni 1953 ) was an uprising that occurred in East Germany from 16 to 17 June 1953. It began with a strike action by construction workers in East Berlin on 16 June against w ...

References

External links

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