Protection

Question 1

define protection

Answer 1

any action by government designed to give the domestic producer an artifical advantage over foreign producers.

Question 2

what are the 3 main ways of protection

Answer 2

1. increase the domestic price of foreign products eg tariffs
2. Provide domestic producers with a cost advantage eg subsidies
3. Impose a quantitative restriction on imports eg quotas

Question 3

what is the goal of protection

Answer 3

to increase domestic production in the protected industry and decrease consumption of imported g/s

Question 4

who benefits from protection

Answer 4

owners and workers in the protected industry and sometimes the gov (revenue)

Question 5

who loses from protection

Answer 5

consumers - pay MORE for LESS domestic and imported GOODS

unprotected industries - protected industries consume resources that others could (import price increases)

Question 6

what is a tariff

Answer 6

a tax placed on an imports increasing the price of imports for consumers

dseigned to increase price of foreign goods so domestic goods get price benefit and gov revenue

Question 7

how do tariffs effect domestic producers, consumers and the gov

Answer 7

domestic producers - sell more at higher price
domestic consumers - get less at higher price
government - gets revenue

Question 8

what is a subsidy

Answer 8

grants/payments made by gov to domestic producers which decreases cost of production

Question 9

how do subsidies effect domestic producers, consumers and the gov

Answer 9

producers - cost decreases quantity increases
consumrs- price same quantity same
gov rev - decreases (op cost)

Question 10

why are subsidies bad

Answer 10

distort resource allocation and create DWL or an ‘invisible tax’