4.1.4 - Protectionism

Question 1

Def protectionism

Answer 1

Protectionism involves any attempt by a country to impose restrictions on trade in goods and services

Question 2

Def subsidy

Answer 2

Any form of government support, financial or otherwise, provided to producers or occasionally consumers

Question 3

Examples of a subsidy

Answer 3

Childcare for working families, aid to businesses making a loss, apprenticeship schemes

Question 4

4 reasons for protectionism

Answer 4

• new fledging industries
• protection of jobs in home industries
• protection of strategic industries
• dumping

Question 5

Description of new fledging industries

Answer 5

Industries that may require temporary government protection from overseas competition

Question 6

Description of protection of jobs in home industries

Answer 6

And an improvement in a countries balance of payments on the current account

Question 7

Description of protection of strategic industries

Answer 7

When a government wishes to protect employment in strategic industries, though value judgements are involved in determining what constitutes a strategic industry’s

Question 8

Explanation of dumping

Answer 8

Happens when a firm sells their products abroad in export markets at below costs of significantly below prices in home market

Question 9

6 forms of protectionism

Answer 9

• import quotas
• tariffs
• domestic and export subsidies
• technical barriers to trade
• import licensing
• intellectual property laws

Question 10

Definition of tariff

Answer 10

Is a tax imposed on an imported product to allow it to enter a country

Question 11

2 reasons why governments use tariffs

Answer 11

• to protect a declining industry

- to protect ‘infant’ industries

Question 12

3 benefits of tariffs

Answer 12

• help firms to survive, protect jobs of firms whose rivals are being taxed
• indirectly protect the other businesses that rely on the firms for trade
• tariffs raise tax revenues, allowing governments to increase spending on public services

Question 13

2 drawbacks of tariffs

Answer 13

• may not put of customers, unfair competition may increase prices for consumers, helps inefficiency firms to survive harming competitiveness

Question 14

Def of quota

Answer 14

A physical limit on the volume of a product that can be imported in a year

Question 15

Benefits of quotas

Answer 15

• domestic firms face less competition, improving their competitiveness and profit
• job security for workers
• preventing unemployment reducing government spending on benefits

Question 16

Drawbacks of quotas

Answer 16

• no extra tax revenue is gained by the government

- they push up prices domestically for consumers

Question 17

Explanation of government legislation

Answer 17

Consumer protection and environmental protection acting as barrier to imports whose products may become illegal

Question 18

Def of domestic subsidy

Answer 18

Is a payment made by government to a business producing a certain product or located in a particular area that the government wishes to support

Question 19

How do subsidy’s directly affect businesses

Answer 19

Reducing unit costs, boosting margins, allowing companies to cut their selling price and be more competitive, protecting jobs

Question 20

Benefits of paying subsidies

Answer 20

• stimulate demand, allowing struggling businesses to boost order books allowing investment in more efficient production
• subsidies have positive effect on balance of payments by reducing imports and boosting exports, more sales

Question 21

Drawbacks of paying subsidies

Answer 21

• inflating profit margins of inefficient businesses preventing them from pushing efficiency gains
• subsidies must be funded meaning government must increase taxation