4.1.6: Restrictions On Free Trade

Question 1

What are reasons for restrictions on free trade?

Answer 1

-Job protection.
-Protection from unfair competition.
-Danger of over specialisation.
-Controls on dangerous goods.`

Question 2

Why does the government utilise job protection to restrict free trade?

Answer 2

Governments may be concerned that allowing imports will mean that domestic producers lose out to international firms, causing job losses within the country.

Question 3

Why does the government utilise protection from unfair competition to restrict free trade?

Answer 3

Domestic producers may otherwise be unable to compete with a firm that has very low labour costs or a heavily government-subsidised firm.

Question 4

Why does the government utilise danger of over specialisation to restrict free trade?

Answer 4

No country should become totally reliant on another for products, so it is important to introduce protectionism to prevent this.

Question 5

Why does the government utilise controls on dangerous goods to restrict free trade?

Answer 5

Many of the tariffs imposed by Donald Trump in 2018 were on the basis of national security.

Question 6

What are the types of restrictions on free trade?

Answer 6

-Tariffs.
-Quotas.
-Subsidies to domestic producers.
-Non-tariff barriers.

Question 7

What are tariffs?

Answer 7

Taxes placed on imported goods which make them more expensive to buy (making people more likely to buy domestic goods).

Question 8

Tariff graph:

Answer 8

Question 9

Q1 -> Q3:

Answer 9

Tariff increases domestic supply (due to less competition).

Question 10

Q2 -> Q4:

Answer 10

Tariff decreases demand (due to higher prices passed onto consumers).

Question 11

KLMN:

Answer 11

Government revenue.

Question 12

KLMN:

Answer 12

Government revenue.

Question 13

Triangle X & Triangle Y:

Answer 13

Deadweight welfare loss.

Question 14

What are quotas?

Answer 14

Limits that are placed on the level of imports allowed into a country.

Question 15

How do quotas work?

Answer 15

People are forced to buy domestic goods if they want a specific good and the quota is already used up.

Question 16

What are subsidies for domestic producers?

Answer 16

Payments to domestic producers that lowers costs and helps them to be more competitive by enabling cheaper prices.

Question 17

What are types of non-tariff barriers?

Answer 17

-Voluntary export restraints (VER).
-Embargoes.
-Excessive administration burdens (‘red tape’).

Question 18

What are the impacts of protectionist policies on domestic producers?

Answer 18

-Protection from lower priced imports.
-X-inefficiency due to reduction of market competition.
-Higher costs if there are controls on the imports they need for production.

Question 19

What are the impacts of protectionist policies on foreign producers?

Answer 19

-They are restricted in where they can export.
-Inefficient domestic producers are kept in production, whilst foreign ones lose out.

Question 20

What are the impacts of protectionist policies on consumers?

Answer 20

-Higher prices as they are unable to buy cheaper imports.
-Less choice.
-Contributing to the domestic economy.

Question 21

What are the impacts of protectionist policies on governments?

Answer 21

-Tariff revenue.
-Politically popular.
-It can lead to an inefficient economy, which stifles growth.

Question 22

What are the impacts of protectionist policies on living standards?

Answer 22

-Import controls results in deadweight welfare loss.
-Trade wars (e.g. US-China trade war).

Question 23

What are the impacts of protectionist policies on equity?

Answer 23

-A rise in price affects the poorer members of society far more than the well off.