4.2 Types Of Trade Protection Flashcards
What is trade protection
Government intervention in international trade through the imposition of trade barriers to prevent free entry of imports into a country
What is a tariff + draw the graph
Taxes on imported goods
Winners of imposition of tariffs
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
Losers of tariff imposition
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
What are quotas + the graph for it
Is a legal limit to the quantity of a good that can be imported over a particular rime period
Winners of quota
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
Losers of quota
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
What is the consumer surplus before and after the quota, using the graph
Before: a + b + c + d + e + f
After: a + b
What is the producer surplus before and after the quota, using the graph
Before : g
After: g + c
What is the welfare loss caused by the quota, using the graph
Area d - welfare loss due to inefficiencies
Area f - reduced consumption
Area e - quota revenue transferred to exporting countries
What is the consumer surplus before and after the tariff, using the graph
Before: a + b + c + d + e + f
After: a + b
What is the producer surplus before and after the tariff, using the graph
Before: g
After: g + c
What is the welfare loss created after the tariff, using the graph
Area d - inefficiency in production
Area f - due to lower quantities
Area e - gained by government
What are protection subsidy + the graph
Payments per unit of output granted by the government to domestic firms that compete with imports
Winners of protection subsidy
domestic producers - are protected, receive lower production costs, can recieve more profits
domestic employment - increase in domestic production increases domestic employment
Losers of protection subsidy
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
What are export subsidies + the graph
Payment by the government per unit of the subsidized good that is exported
Winners of export subsidies
Domestic producers - receive higher price and sell larger quantity, increasing exports
Domestic employment - increase in domestic production increases employment
Losers of export subsidy
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
What are administrative barriers
Testing and inspection procedures of products that are costly and time consuming in order to reduce quantity of imports
