Exam questions Flashcards
Give the points and analysis for the question.
“To what extent do you think that UK businesses will experience a fall in profit if governments limit free trade by adopting more protectionist policies?” (25 marks)
point 1:
- Explanation:
Protectionist policies reduce competition, leading to higher costs for imported goods.
Businesses relying on imported raw materials (e.g., UK car manufacturers) face higher costs, reducing profit margins.
Retaliation from other countries reduces UK exports, decreasing revenue for UK businesses.
Example:
If the UK imposes tariffs, EU countries might impose tariffs in return, making it harder for UK firms (e.g., Rolls-Royce, Burberry) to sell abroad.
Analysis:
Higher costs → Lower competitiveness → Reduced revenue & profit margins
Tariffs on imports → UK firms pass costs to consumers → Lower demand
Point 2
Explanation:
Protectionist policies reduce foreign competition, allowing UK businesses to increase market share.
Government subsidies can help domestic firms lower costs and become more competitive.
Example:
UK farming subsidies help British farmers compete against cheaper imported produce.
Analysis:
Less competition → Higher prices & revenue for UK businesses
Subsidies lower production costs → Higher profit margins
Point 3:
Explanation:
In the long run, protectionism reduces efficiency and innovation, as businesses lack competition to drive improvements.
Trading partners might retaliate with their own protectionist measures, harming UK exports.
Example:
Brexit trade barriers have made it harder for UK businesses to export to the EU, reducing sales and profitability.
Analysis:
Short-term gain (less competition) vs. Long-term loss (inefficiency, trade wars).
UK firms relying on global supply chains face higher costs & uncertainty.
