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Import quotas are restrictions on the quantity of a product that can be legally imported. Like other trade restrictions, quotas may serve a purpose, but they limit the potential gains from trade that can be realized. To the right we show the possible gains from trade available to Country A if import quotas are imposed on Cars imported from Country B.
With no quotas, Country A can potentially import up to 100 Cars, all that Country B can produce. As the number of imported Cars allowed decreases, potential gains from trade and the size of A's Trade Region diminish, so that whatever terms of trade are agreed upon, potential gains from trade are reduced. With 0 Cars allowed, no gains from trade can be enjoyed regardless of the terms of trade offered and Country A can only attain points on its own PPF.
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