6) Protectionism

Question 1

What is protectionism??

Answer 1

Countries opting to impose restrictions on foreign imports

Question 2

What are Tariffs

Answer 2

A tax or duty that raises the price of imported products

Question 3

What are quotas??

Answer 3

A restriction on the level of import volumes allowed in a country

Question 4

Draw a tariff diagram

Answer 4

Draw a tariff diagram

Question 5

What effect does the tariff have on economic welfare, price level, consumer and producer surplus’??

Answer 5

• Economic welfare is lost in the form of the two triangles of X and Y, but tariff revenue between the two triangle is gained for the country.
• Price level increases because world suppliers charge higher prices to accommodate the cost of the tax
• Consumers lose out from lost consumer surplus due to higher prices
• Domestic suppliers gain from increased producer surplus because more domestic suppliers can produce above the previous market price but below the new price set by the world supply plus tariff.

Question 6

Draw a quota diagram

Answer 6

Draw a quota diagram

Question 7

What effect does a quota have an consumer and producer surplus/production

Answer 7

• Consumer surplus falls because the price of goods increases as domestic producers produce goods at a higher price than the original world price. The new supply line is kinked, as the world supplies a limited amount at the new price.
• Domestic supply shifts to the left from the new price with the quota to produce the kinked supply line
• Consumer surplus falls due to higher prices, but domestic producer surplus increases as more domestic firms can supply at higher prices.

Question 8

How can trade blocs help WTO objectives?

Answer 8

-trade creation will see an increase in international trade, with production shifting to areas of comparative advantage, encouraging competition and therefore efficiency

Question 9

How can trading blocs conflict with the WTO?

Answer 9

-Trade diversion; trade barriers eg tariffs on New Zealand imposed on non members will see trade shift towards higher cost countries and away from low cost countries, so these countries wont fully be able to exploit their comparative advantage

Question 10

What does the EUs common agricultural policy do (CAP) and how did this negatively affect developing nations??

Answer 10

• uses measures such as subsidies and buffer stocks as well as import restrictions to ensure a minimum price for EU farming produce as other countries outside the trading bloc may be more competitive otherwise
• developing nations see a loss in competitiveness because they are unable to export to the EU due to the help from the CAP