4.2 Types Of Trade Protection

Question 1

What is trade protection

Answer 1

Government intervention in international trade through the imposition of trade barriers to prevent free entry of imports into a country

Question 2

What is a tariff + draw the graph

Answer 2

Taxes on imported goods

Question 3

Winners of imposition of tariffs

Answer 3

Domestic producers - receive protection from tariff as they receive a higher price and sell a larger quantity

Domestic employment - sell a larger quantity, increasing employment

Government - gain revenue from tariff

Question 4

Losers of tariff imposition

Answer 4

Domestic consumers - pay higher prices

Domestic income distribution - tariff is a type of regressive tax, burdening lower income groups more then higher income groups

Society - protection of domestic producers leads to waste of resource and inefficiency due to low competition

Foreign producers - export a smaller quantity, losing revenue

Question 5

What are quotas + the graph for it

Answer 5

Is a legal limit to the quantity of a good that can be imported over a particular rime period

Question 6

Winners of quota

Answer 6

Domestic producers - receive protection from quota as they receive a higher price and sell a higher quantity

Domestic employment - domestic unemployment in protected industries increases as producers increase quantity of output they produce

Question 7

Losers of quota

Answer 7

Domestic consumers - pay higher prices and buy a smaller quantity

Domestic income distribution worsens - same effect as regressive tax

Inefficiency / Society - decreased inefficiency by firms due to less competition + shift away from more efficient foreign producer to more inefficient domestic producers

Foreign producers - export smaller quantity, resulting in loss of export revenue

Question 8

What is the consumer surplus before and after the quota, using the graph

Answer 8

Before: a + b + c + d + e + f

After: a + b

Question 9

What is the producer surplus before and after the quota, using the graph

Answer 9

Before : g

After: g + c

Question 10

What is the welfare loss caused by the quota, using the graph

Answer 10

Area d - welfare loss due to inefficiencies

Area f - reduced consumption

Area e - quota revenue transferred to exporting countries

Question 11

What is the consumer surplus before and after the tariff, using the graph

Answer 11

Before: a + b + c + d + e + f

After: a + b

Question 12

What is the producer surplus before and after the tariff, using the graph

Answer 12

Before: g

After: g + c

Question 13

What is the welfare loss created after the tariff, using the graph

Answer 13

Area d - inefficiency in production

Area f - due to lower quantities

Area e - gained by government

Question 14

What are protection subsidy + the graph

Answer 14

Payments per unit of output granted by the government to domestic firms that compete with imports

Question 15

Winners of protection subsidy

Answer 15

domestic producers - are protected, receive lower production costs, can recieve more profits

domestic employment - increase in domestic production increases domestic employment

Question 16

Losers of protection subsidy

Answer 16

government - government must spend tax revenues on subsidy

inefficiency / society - production of domestic inefficient producers increases, while production of more efficient foreign producers falls

Foreign producers - export less of the good, export revenue falls

Question 17

What are export subsidies + the graph

Answer 17

Payment by the government per unit of the subsidized good that is exported

Question 18

Winners of export subsidies

Answer 18

Domestic producers - receive higher price and sell larger quantity, increasing exports

Domestic employment - increase in domestic production increases employment

Question 19

Losers of export subsidy

Answer 19

Consumers - pay higher prices and consumer smaller quantity

Government - must pay for subsidy

Inefficiency - inefficient domestic producers are protected by higher prices

Foreign producer - lose share of their global market, export revenue fall

Question 20

What are administrative barriers

Answer 20

Testing and inspection procedures of products that are costly and time consuming in order to reduce quantity of imports