Protectionism

Question 1

Define PROTECTIONISM

Answer 1

Protectionism is the policies imposed by governments to restrict the free movement of goods and services between countries.

Question 2

What are the reason for protectionism?

Answer 2

• to protect infant industries
• to protect domestic employment
• to encourage more exports than imports to improve an economy’s performance
• to restrict imports from counties with poor health and safety and environmental legislation
• strategic reasons (e.g. self-sufficiency)
• to generate tax revenue
• in retaliation to other countries
• to prevent dumping

Question 3

What are the key reasons for protectionism?

Answer 3

1. Protection of infant industries - they are young industries who will be unable to compete with established MNCs in developed nations and therefore will need protection (at least in the short term).
2. Dumping due to overproduction in developed nations. They will sell the excess for low prices in emerging economies, driving down prices and forcing domestic producers out of the market.
3. Domestic employment - protectionist measures may help to protect domestic jobs by diverting spending to firms that operating within that economy.

Question 4

What are the 4 types of protectionist measures?

Answer 4

Tariffs, quotas, subsidies, government legislation

Question 5

Define TARIFFS

Answer 5

A tariff is a tax or duty that raises the price of imported goods.

Question 6

What are the advantages of tariffs?

Answer 6

• Reduces the level of imports
• Raises tax revenue for the government
• Products are still available at the higher price for those who are able to pay.

Question 7

What are the disadvantages of tariffs?

Answer 7

• Depends on PED for imports
• Higher prices for consumers
• Protects less efficient domestic companies.

Question 8

Define QUOTAS

Answer 8

Quotas are volume or value limits on the level of imports allowed into a country in a given time period.

Question 9

What are the advantages of quotas?

Answer 9

• Reduces level of imports

- Doesn’t directly raise the prices for consumers

Question 10

What are the disadvantages of quotas?

Answer 10

• Limits consumer choice

- Encourages black market trade

Question 11

Define SUBSIDIES

Answer 11

Subsidies are payments from a government to encourage domestic production by lowering costs for producers in that country.

Question 12

What are the advantages of subsidies?

Answer 12

• Reduces prices for consumers

- Raises export levels for domestic producers

Question 13

What are the disadvantages of subsidies?

Answer 13

• Increased governmental spending
• Needs to be funded (either by higher taxes or by higher government debt)
• Protects less efficient domestic producers

Question 14

Define GOVERNMENT LEGISLATION

Answer 14

Government legislation are laws and regulations designed to impact on the behaviour of businesses.

Question 15

What are the advantages of government legislation?

Answer 15

• Improved quality of products

- Reduced negative effect on the environment and workers.

Question 16

What are the disadvantages of government legislation?

Answer 16

• Raises costs (and possibly prices for consumers)
• Loopholes can be found
• Difficult to check and enforce compliance

Question 17

What are the positive impacts of protectionism on businesses?

Answer 17

• May be beneficial for domestic companies
• Protects industries from outside competition
• Guarantees markets and stability

Question 18

What are the negative impacts of protectionism on businesses?

Answer 18

• Loss of export markets
• Reduction in economies of scale potential
• Political uncertainty.