What are the two types of quotas?

The correct response identifies the two primary types of quotas used in international trade: an absolute quota and a tariff rate quota.

An absolute quota allows a specific quantity of a particular product to be imported during a given time period. Once the limit is reached, no further imports of that product can be brought into the country for the duration of that period. This type of quota is typically established to protect domestic industries from foreign competition by limiting the number of goods that can enter the market.

On the other hand, a tariff rate quota (TRQ) combines elements of both tariffs and quotas. It permits a certain quantity of goods to be imported at a lower tariff rate, while any imports exceeding that quantity would be subject to a higher tariff rate. This approach balances the need to protect domestic producers while still allowing access to foreign goods.

Understanding these two types of quotas is essential for navigating trade regulations and the complexities of international commerce, as they help regulate the volume of goods entering a country while providing a means to manage trade competition.