Read the information below about trade in a small island country. The state wants to support local businesses that assemble rechargeable lanterns. It has is...
Question 1 Report
Read the information below about trade in a small island country.
The state wants to support local businesses that assemble rechargeable lanterns. It has issued licences allowing companies to bring in no more than 12 500 finished lanterns from overseas during the calendar year. By the end of October, importers had used licences for 10 800 lanterns. BrightHome, a retailer, plans to buy 2 400 more finished lanterns on credit from a foreign supplier.
(a) Calculate how many finished lanterns may still be imported before the limit is reached. Show your working. [2]
(b) Identify the trade restriction used by the state. [1]
(c) Explain two reasons why the state may use this restriction to help local lantern businesses. [4]
Answer Details
(a) Calculate the unused part of the annual limit:
\[12\,500-10\,800=1\,700\]
1,700 finished lanterns may still be imported [2].
(b) The restriction is an import quota, or import limit [1]. It sets a maximum quantity that may be imported.
(c) A quota limits competition from cheaper foreign finished lanterns. Local assemblers may therefore sell more lanterns [2]. It can also give local businesses time to grow and become more efficient [2]. Protecting local jobs, and reducing money paid to foreign suppliers to improve the balance of trade, are further valid explained reasons.
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