CA Foundation · Business Economics · International Trade
India fixes an import quota of 50,000 tonnes of edible oil. Under free trade, India would import 80,000 tonnes at the world price of ₹100 per kg. After the quota, the domestic price rises to ₹115 per kg. If the licences are given free to importers who buy at ₹100 and sell at ₹115, what is the total quota rent (windfall gain) earned by the licence holders?
The quota rent is ₹75 crore. It equals the price gap of ₹15 per kg multiplied by the 50,000 tonnes (5 crore kg) of permitted imports. The free-trade import quantity of 80,000 tonnes is irrelevant, since only the quota quantity earns the gap.
- A₹75 croreCorrect
- B₹120 crore
- C₹45 crore
- D₹15 crore
Explanation
Quota rent = (domestic price − world price) × quota quantity = ₹15 per kg × 50,000 tonnes. 50,000 tonnes = 5,00,00,000 kg, so rent = 15 × 5,00,00,000 = ₹75,00,00,000 = ₹75 crore. Using 80,000 tonnes gives ₹120 crore, which wrongly uses the free-trade quantity instead of the quota.
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