<4.2.2 QUOTAS>

The quota leads to a shortage of players at the world price; so clubs want more talent than is available at the old cost, therefore, bidding wars for quota slots and domestic players drive up wages and transfer fees, and domestic production increases as the price rises, as it becomes financially viable for English academies to produce more players. As player wages/transfer fees are the biggest cost for clubs. To cover these higher costs of production, clubs seek more revenue. One of the most direct ways is to increase average ticket prices.

• "We have seen from the diagram that the price received by all the sellers is above the free market price, so whoever gets the 'quota license' that basically says, 'Company X has the right to import Y amount of Good Z,' will earn more than they would have without the quota, so who gets to benefit from this?"

• Almost all the cases of dumping that make the headlines involve export subsidies given to exporters that already have significant market shares such as China and the solar panel market, therefore the additional exports they produce thanks to the subsidies actually impact world supply enough to actually lower it, which makes the dumped price even lower, threatening domestic producers further. 

• Can you sketch a 2 country diagram to model this?

• Using an international trade diagram, explain the likely impact of the removal of import quotas on North Macedonia’s production of wine.

• Using an international trade diagram, explain how a subsidy could help Tanzanian dairy farmers compete against imported dairy products.

• Using an international trade diagram for the US market, explain how the imposition of a 15 % tariff on imported garments from Bangladesh would affect the revenue earned by Bangladeshi producers.

• Using an international trade diagram, explain the effect on consumers in Uruguay if a quota is imposed on cheese imports from the EU.

• Using an international trade diagram, explain the effect on domestic chicken producers revenues in Singapore if a production subsidy is removed.

• Go to the WTO website HERE and find a dispute.

• Now look for an article related to this dispute.

• Now you have 

• Before any government intervention, we can see that the country is an EXPORTER, producing Q3 output at the world price (WP), of which Q2 is consumed domestically, whilst the rest (Q2 to Q3) is exported.

• When offered an EXPORT SUBSIDY, they are willing and able to produce Q4 output, as they can receive a higher price of Ps. of which Q1 is consumed domestically, whilst the rest (Q1 to Q4) is exported.

• MORE EXPORTS are now SOLD at WP, thanks to the subsidy, however, DOMESTIC CONSUMERS PAY A HIGHER PRICE (Dom. price a/f sub), and subsequently consume less (Only Q1), hence this is an example of DUMPING.

• 1) After the government intervention, we initially see that 

  • • PS rises by (a + b + c).

    • CS falls by - (a + b).

    • Thefore the PS gains of (a + b) are canceled out by the losses of CS.

    • Leaving an initial net gain in TSS of + c.

• 2) When the cost of the subsidy is deducted - (b + c + d).

  • • The TSS gain of + c is canceled out.

    • The PS benefit of (a + b) has already been canceled so the subsidy costs of - (b + d) are not cancelled out.

    • Hence areas  b + d are the DWLs.

• This country was an importer, but when it receives the PRODUCTION SUBSIDY it not only pushes out imports and satisfies all domestic demand it has a surplus if it were to export, would constitute an EXPORT SUBSIDY, which is ILLEGAL.