Macro - International trade Flashcards
What is protectionism?
Refers to policies imposed by governments to restrict the free movement of goods and services between countries
What are some of the benefits of free trade? (7)
- Specialisation leads to a more efficient allocation of resources
- Increased competition -> increased productive efficiency
- Encourages and rewards innovation
- Job creation in imports and exports due to increased demand
- Economic growth
- Increased consumer choice
- Greater respect for other countries customs and culture
What are some methods of protectionism? (4)
- Tariff
- Quota
- Embargo
- Regulations
What is a tariff and what is its effect?
Tariffs are taxes imposed on imports and exports.
The effect is that they reduce trade of imports and exports leading to an increase in domestic supply.
What is the function of a quota?
A boundary placed on the amount of imports and exports of a particular good or service.
Represented by a perfectly inelastic supply curve indicating that supply is not possible past that point.
What is the function if an embargo?
An embargo is a ban on the import/export of a particular good or service. This can be a complete or partial ban.
What are regulations?
Enforced standard that are to be met before trade is allowed.
What are the effects of a reduction in tariff barriers?
- Lower prices for consumers
- Increased amount of imports
- Government loss of tax revenue.
- Loss of producer surplus for domestic firms.
- Increase in economic welfare (size of this depends on elasticities of demand and supply)
Why does protectionism exist?
- To protect do domestic markets and jobs
- To achieve domestic macro economic policy objectives
- To reduce or eliminate the import of demerit goods
- Increase government revenue from tariffs
- Maintain quality and safety standards amongst imported goods
