4.1.6: Restrictions On Free Trade Flashcards
What are reasons for restrictions on free trade?
-Job protection.
-Protection from unfair competition.
-Danger of over specialisation.
-Controls on dangerous goods.`
Why does the government utilise job protection to restrict free trade?
Governments may be concerned that allowing imports will mean that domestic producers lose out to international firms, causing job losses within the country.
Why does the government utilise protection from unfair competition to restrict free trade?
Domestic producers may otherwise be unable to compete with a firm that has very low labour costs or a heavily government-subsidised firm.
Why does the government utilise danger of over specialisation to restrict free trade?
No country should become totally reliant on another for products, so it is important to introduce protectionism to prevent this.
Why does the government utilise controls on dangerous goods to restrict free trade?
Many of the tariffs imposed by Donald Trump in 2018 were on the basis of national security.
What are the types of restrictions on free trade?
-Tariffs.
-Quotas.
-Subsidies to domestic producers.
-Non-tariff barriers.
What are tariffs?
Taxes placed on imported goods which make them more expensive to buy (making people more likely to buy domestic goods).
Tariff graph:
Q1 -> Q3:
Tariff increases domestic supply (due to less competition).
Q2 -> Q4:
Tariff decreases demand (due to higher prices passed onto consumers).
KLMN:
Government revenue.
KLMN:
Government revenue.
Triangle X & Triangle Y:
Deadweight welfare loss.
What are quotas?
Limits that are placed on the level of imports allowed into a country.
How do quotas work?
People are forced to buy domestic goods if they want a specific good and the quota is already used up.
What are subsidies for domestic producers?
Payments to domestic producers that lowers costs and helps them to be more competitive by enabling cheaper prices.
What are types of non-tariff barriers?
-Voluntary export restraints (VER).
-Embargoes.
-Excessive administration burdens (‘red tape’).
What are the impacts of protectionist policies on domestic producers?
-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.
What are the impacts of protectionist policies on foreign producers?
-They are restricted in where they can export.
-Inefficient domestic producers are kept in production, whilst foreign ones lose out.
What are the impacts of protectionist policies on consumers?
-Higher prices as they are unable to buy cheaper imports.
-Less choice.
-Contributing to the domestic economy.
What are the impacts of protectionist policies on governments?
-Tariff revenue.
-Politically popular.
-It can lead to an inefficient economy, which stifles growth.
What are the impacts of protectionist policies on living standards?
-Import controls results in deadweight welfare loss.
-Trade wars (e.g. US-China trade war).
What are the impacts of protectionist policies on equity?
-A rise in price affects the poorer members of society far more than the well off.