China\'s entry into the World Trade Organization (WTO) in 2001 created more comp

Question

China's entry into the World Trade Organization (WTO) in 2001 created more competition between local and foreign firms, and also provided China greater access to the market for exports. This was particularly true in the market for rubber since, at the time, China was the world's second largest consumer of rubber (China is now the world's largest consumer of rubber). Shortly after joining the WTO, China eliminated its import quota on rubber. What impact do you think the import quota reduction likely had on the price of rubber and the quantity of rubber exchanged in China? What implications do you think the elimination of the quota on rubber had on China's social welfare?

Explanation / Answer

As the import quota posed restrictions on the quantity of rubber imported in China, the elimination of import quota will create large additional demand for rubber. As China is the world's largest rubber consumer the large demand created will increase the equilibrium price and quantity.

The social welfare has increased because China being the world's largest consumer of rubber will gain from the international trade without barriers.

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