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Difficulty: MediumCommercial Policy and Trade Barriers (Tariffs, Quotas, Embargoes, and Subsidies)

A developing country experiences a persistent balance of payments deficit. To limit foreign exchange expenditure on luxury motor vehicles without levying an indirect tax on their importation, the trade ministry fixes a physical maximum of 5,000 vehicles allowed into the country per calendar year. Which commercial policy instrument has the government introduced?

  1. A quantitative import quotaAnswer
  2. B
    An ad valorem import duty
  3. C
    A total trade embargo
  4. D
    An export promotion grant

Answer

A quantitative import quota is the commercial policy instrument introduced.
The correct option correctly identifies the policy as a quantitative import quota because the government specifies a fixed maximum volume (5,000 units per year) of a commodity that can legally enter the country, directly limiting supply rather than using price-based taxes like tariffs.

Step-by-Step Solution

1
Analyze the nature of the trade policy measure
The measure establishes a physical limit of 5,000 units on luxury vehicle imports without charging a customs duty or tax.
Commercial policy instruments are distinguished by whether they manipulate prices (tariffs), quantities (quotas), prohibitions (embargoes), or production costs (subsidies).
2
Map the specific policy characteristic to commercial trade terminology
Direct volume/physical caps on imported commodities are classified as quantitative import quotas.
Import quotas regulate the maximum physical quantity or value of a commodity permitted into a nation over a specified timeframe.

Key Concept

Quantitative Import Quotas
Estimated Time:1m 0s
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Topics

Commercial Policy and Trade Barriers (Tariffs, Quotas, Embargoes, and Subsidies)

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