4.1.6 restrictions on free trade

Question 1

what is a trade barrier?

Answer 1

a restriction placed on the import of foreign goods imposed by the government

Question 2

what is free trade?

Answer 2

international trade without any barriers

Question 3

what are the 4 types of restriction on free trade?

Answer 3

• tarrifs
• quota
• subsidies
• non- tarrif barriers

Question 4

what is a tarrif?

import/ custom duties

Answer 4

tax on imported goods

Question 5

draw tarrif diagram

Answer 5

1. world supply shifts upwards
2. extention in domestic supply
3. contraction in domestic demand
4. decrease in quantity of imports

overall: tariffs reduce quanity of imports

Question 6

what are the effects of tarrifs on consumers, producers, governments shown on the diagram?

Answer 6

1. producer surplus gained
2. tax revenue raised
3. welfare loss created

Question 7

what are quotas?

Answer 7

a strict limit on the quantity of imports of goods

Question 8

what are the drawbacks of quotas?

Answer 8

• no extra tax revenue
• severe shortages for consumers

Question 9

what is a subsidy ?

Answer 9

when the government gives a grant to firms to increase supply

Question 10

how does a subsidy to domestic producers work?

Answer 10

• grants given to firms, cheaper prices make domestic goods more competitive
• decrease in demand for imports, decraese in trade
• cost a government

decraeses trade

Question 11

define non tarrif barriers

Answer 11

restrictions to free trade by setting rules and regulations for imports to follow

Question 12

what are some non tariff barriers?

Answer 12

• health and saftey regulations
• enviromental regulation
• label regulations (correct BB dates)

restricting trade by setting rules and regulations to follow

Question 13

what are the reasons to restrict free trade?

Answer 13

• preventing dumping
• protecting domestic employments
• protecting infant industries
• health and saftey

trade barriers aka protectionist policies

Question 14

what is dumping?

Answer 14

when foreign firms aggresivley cut their prices belowaverage variable costs, to force out domestic producers from a market

short run loss, long run 100% market share and price manipulation

Question 15

how do trade barriers protect domestic employment?

Answer 15

• consumers can’t buy as many cheap foreign imports, so must demand domestic
• if there is less demand for domestic goods, then there is less derived demand for labour, decraesaing domestic employment

keeps demand for domestic goods high

Question 16

what is an infant industry?

Answer 16

new idsutries which do not benefit from economies of scale and cannoty compete with larger industries from other countries

higher production costs–> less competitive prices

Question 17

how do trade barriers protect infant industries?

Answer 17

• infant industries do not benefit from economies of scale
• this means they have higher production costs
• connot compete with large industries from other countries
• subsidies to domestic producers can help reduce the price of their good

Question 18

why are health and saftey reguations put in place?

or labelling

Answer 18

help to maintain health and saftey standards