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CA Foundation · Business Economics · International Trade

A country allows imports of a good under a quota of 50,000 units a year. Under free trade, domestic demand at the world price is 1,20,000 units and domestic producers supply 40,000 units at that price. Compared with free trade, by how many units are imports restricted?

Imports are restricted by 30,000 units. Free-trade imports are demand minus domestic supply, which is 1,20,000 minus 40,000, or 80,000 units. The quota permits only 50,000 units, so the shortfall from free-trade imports is 80,000 minus 50,000, giving 30,000 units.

  1. A20,000 units
  2. B30,000 unitsCorrect
  3. C50,000 units
  4. D80,000 units

Explanation

Under free trade, imports equal demand minus domestic supply: 1,20,000 - 40,000 = 80,000 units. The quota allows only 50,000 units, so imports are restricted by 80,000 - 50,000 = 30,000 units. Option D is the free-trade import level, not the reduction.

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