Protectionism Flashcards

1
Q

What do tariffs aim to do

A

Protect domestic industries from overseas competition by increasing the relative price of imports, thereby causing a fall in import demand

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2
Q

Benefits of tariffs

A

Generate tax revenues for the government who levy tariffs.

May also improve the trade balance.

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3
Q

Why does consumer surplus do following a tariff

A

Falls - as consumers are hit by higher prices

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4
Q

What happens to overall economic welfare as a result of import tariffs

A

Falls - there is a deadweight loss of economic welfare / loss of economic efficiency

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5
Q

Impact of an import tariff on domestic producers

A

Initially benefit - protected from lower prices imports and expect an increase in output at a higher price

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6
Q

Impact of an import tariff on foreign (overseas) producers

A

It is a barrier to trade and squeezes demand leading to lower revenues and profits

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7
Q

Impact of an import tariff on consumers

A

Consumers face higher prices - fall in real incomes. May affect lower income households more. Loss of consumer choice (lower utility)

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8
Q

Impact of an import tariff on the government

A

Tax revenues rise initially from having imported tariffs - rising GDP and profitability of suppliers

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9
Q

Evaluation point on the impact of an import tariff on domestic producers

A

Possible X-inefficiencies bc of reduction in intensity of market competition

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10
Q

Evaluation point on the impact of an import tariff on foreign (overseas) producers

A

Producers may be able to shift production / exports to countries or regions where import tariffs are lower

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11
Q

Evaluation point on the impact of an import tariff on consumers

A

Depends on PED of good affected

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12
Q

Evaluation point on the impact of an import tariff on the government

A

Adverse effects of possible retaliatory tariffs on other industries - slower economic growth from higher inflation

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13
Q

Examples of non-tariff barriers (NTBs)

A
  • intellectual property laws e.g. patents
  • domestic subsidies
  • financial protectionism
  • managed XRs
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14
Q

What are preferential procurement policies (NTBs)

A

Where governments favour local producers when finalising contracts for infrastructure projects or purchasing new defence equipment

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15
Q

What is a quota

A

A physical quantity (supply) limit on the volume of imports of a product

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16
Q

What is the effect of quota

A

To create excess demand for imports for a given level of demand (pushes up the market price)

17
Q

Consequence of an import quota on government tax revenues

A

No direct effect - a quota is different from a tariff

18
Q

Consequence of an import quota on consumer surplus

A

Fall - higher prices reduces consumer welfare

19
Q

Consequence of an import quota on overall economic welfare

A

Falls - quota restricts free trade and leads to deadweight loss of economic welfare

20
Q

Evaluation of the impact of an import quota on domestic producers

A

Domestic firms might become less productively efficiency

21
Q

Evaluation of the impact of an import quota on consumers

A

Consumers who work for domestic firms may benefit from higher employment. Might stimulate increased investment in alternatives.

22
Q

Evaluation of the impact of an import quota on the government

A

No immediate tax revenues from an import quota - a contrast with an import tariff

23
Q

Recent example of import quotas in the news

A

EU sugar import quota scheme will come to an end (2017)

24
Q

What is a subsidy

A

Any form of financial help given to domestic producers in order to lower their costs and help them compete in international markets

25
What is a subsidy a form of
Non-tariff barrier
26
What does a subsidy cause
A parallel downward shift in the supply curve
27
What do we assume about subsidies
That they are not large enough to change the world supply price but it does not give domestic firms a higher price (= world supply price + the subsidy)
28
What does a subsidy cause
A rightward shift on the supply curve