Protectionism

Question 1

Definition of protectionism

Answer 1

Protection involves protecting domestic industries from foreign competition by placing restrictions on international trade

Question 2

Types of trade protection

Answer 2

1. Tariff
2. Quotas
3. Voluntary export restraints (VERs)
4. Subsidies
5. Administrative or regulatory barriers
6. Exchange controls
7. Embargoes

Question 3

Definition of tariff

Answer 3

A tax, specific or ad valorem on imported goods

Question 4

Effects of tariffs

Answer 4

1. Consumers are worse
2. Domestic producers are better off
3. Domestic unemployment increases
4. Government gain tariff
5. Domestic income distribution worsens
6. Increased inefficiency in production
7. Foreign producers are worse off
8. Global misallocation of resources

Question 5

Advantages of tariffsn

Answer 5

1. Reduce quantity demanded for imports
   - reduced outflow of currency
2. Allow breathing space
   - infant industry , which has a potential comparative advantage
   - tariff will allow time to grow and become efficient at some point the tariff will be removed
3. Dumping can be prevented
   - dumping is the selling of goods below the cost of production possibly due to government support
4. Raise revenue for the government

Question 6

Disadvantages of tariffs

Answer 6

1. Not effective when demand is inelastic
2. Not relevant to dealing with a deficit
3. Reduce benefits of free trade
4. Breach international obligations and may provoke retaliation from other country

Question 7

Quotas

Answer 7

A legal limit on the quantity of a product that can be imported into a country

Question 9

Quota vs tariff

Answer 9

1. Quota tend to cause a bigger fall in economic welfare because government don’t gain any tax revenue
2. Quotas allow country to determine the umber of import while tariff is more unknown
3. Quotas may be harder to enforce if it is difficult to count
4. Quotas could be more unfair