Free trade, protectionism and the WTO

Question 1

what is the WTO

Answer 1

-aims to help trade be as free as possible
-uses trade rules where countries must treat every member equally
-wants to encourage competativeness and discourage trade barriers

Question 2

why would government want to use protectionist policies

Answer 2

-to protect jobs domestically
-to avoid over dependence
-to ban certain goods

Question 3

tariff

Answer 3

tax on selected imports, imports become more expensive therefore domestic firms can compete and also tax revenue is raised for the government

Question 4

quotas

Answer 4

limit the quantity of a certain good that can be imported

Question 5

embargo

Answer 5

a complete ban on a certain item

Question 6

subsidies to domestic firms

Answer 6

reduces cost of production of domestic products making them cheaper to buy

Question 7

limitation of protectionism

Answer 7

-reduces specialisation therefore reduces allocative and productive efficiency
-increase in inequality as imported price rises will affect the poor more and the standard of living
-trade barriers lead to retaliation
-subsidies to domestic firms might fail due to non price competition

Question 8

trading bloc

Answer 8

associations between different governments that promote and manage trade

Question 9

free trade areas

Answer 9

all barriers of trade removed between members but individual members can still impose barriers on outside countries

Question 10

customs unions

Answer 10

same as free trade areas + standard tariffs imposed on non-members

Question 11

common markets

Answer 11

customs unions + free movement of factors of production between members

Question 12

monetary unions

Answer 12

members implement a single common currency and therefore have common monetary policy controlled by a central bank

Question 13

example of monetary unions

Answer 13

the eurozone

Question 14

how can trading blocs help with WTO objectives

Answer 14

trading blocs lead to trade creation. removing barriers mean countries can specialise in goods where they have a comparative advantage . this helps with WTO objectives as it encourages competitiveness and improves efficiency

Question 15

how can trading blocs conflict with WTO objectives

Answer 15

trading blocs lead to trade diversion. countries outside the bloc have trade barriers imposed on them and therefore can’t use their comparative advantage by specialising. conflicts with WTO objectives and interferes with competition preventing the most efficient goods from being traded