Ch. 70 Trade Policy

Question 1

Costs of trade? (7)

Answer 1

Overdependence
Jobs (structural unemployment)
Distribution of income
Environmental impact
Loss of sovereignty (countries lose power to make their own decisions due to treaties)
Loss of culture

Question 2

Methods of protection and 2 definitions?

Answer 2

Tariffs = A tax on imported goods (import/customs duty)

Quotas = A limit on the quantity of a good that can be imported

Question 3

Arguments used to justify protectionism?(5)

Answer 3

• infant industry argument
• job protection
• dumping
• cheap labour
• other arguments

Question 4

Explain infant industry argument for protectionism and 2 EV?

Answer 4

New industries will be v. uncompetitive since they will be competing with huge MNCs who have EofS and more knowledge in the industry.

EV: - industries protected by trade barriers lack pressure to become more efficient so they don’t.
- governments often bad at choosing ‘infant industries’ to protect

Question 5

Explain job protection argument for protectionism and EV?

Answer 5

-protectionism prevents large foreign industries from eliminating domestic competition and causing structural unemployment

EV: retaliation causes less demand causes less employment

Question 6

Dumping argument for protectionism and definition?

Answer 6

DEF = the sale of goods below their cost of production by foreign producers on domestic markets

-dumping can drive other companies out of business to create a monopoly - damages domestic supply

Question 7

Cheap labour argument for protectionism?

Answer 7

Countries with high labour costs accuse those with low labour costs of ‘unfair competition’

EV: the countries with lower labour costs often are poorer anyway, and often have profits drained from them by richer countries and MNCs.

Question 8

Explain other arguments for protectionism?(2)

Answer 8

• industries needed for defence need to be domestic

- ‘dangerous’ products (unsafe electrical appliances)

Question 9

Benefits of trade? (4)

Answer 9

• Specialisation (CA)
• Economies of scale can be maximised
• Increased choice
• Innovation (free trade causes competition which leads to faster innovation)

Question 10

Define free trade?

Answer 10

International trade conducted without existence to trade barriers such as quotas and tariffs.

Question 11

Define trade barriers?

Answer 11

Any measure which artificially restricts international trade.

Question 12

4 advantages of free trade?

Answer 12

• Higher living standards - due to comparative advantage world output will increase
• Increased choice
• Lower prices therefore higher consumer surplus
• Economies of scale

Question 13

Role of WTO? (2)

Answer 13

• Promote free trade through rounds of talks to reduce protectionism
• To settle disputes between countries

Question 14

Disadvantages of free trade? (6)

Answer 14

4DUT

• DEFICIT in goods and services balance if a country is uncompetitive
• Danger of DUMPING (eg. China) from countries with surpluses of goods
• Increased UNEMPLOYMENT in uncompetitive countries
• DISRUPTION risk resulting from problems in global economy
• Unbalanced DEVELOPMENT due to specialisation (sectoral imbalance)
• Global monopolies from TNCs

Question 15

3 disadvantages of free trade for developing countries?

Answer 15

• Monopsony power in developed countries can force developing countries to accept low prices
• Countries dependent on primary products may face declining terms of trade
• Infant industries may be unable to compete in the global market