Protectionism

Question 1

arguments for protectionism

Answer 1

• protect domestic employment: keep jobs safe from foreign competition
• protect infant industries
• counteract relative domestic tax differences: domestic tax policies can reduce or enhance competitiveness of a country’s exports
• prevent dumping
• diversify production base of LDCs
• enforce product standards
• raise government revenue: in nations where tax compliance is low, customs duties can provide a vital source of money
• protect against unfairly low labor costs
• protect strategic industries: military and defence in particular
• overcome a balance of payments deficit: if spending excessively on imports
• improve terms of trade

Question 2

infant industries

Answer 2

industries that are newly developed and have not had an opportunity to develop the economies of scale and low costs that are achieved by selling to a large market

Question 3

dumping

Answer 3

selling of goods to another country at a price below the original domestic production costs

Question 4

arguments against protectionism

Answer 4

• misallocation of resources: nations may protect declining industries and make consumers pay higher prices
• escalation to trade war: arguments over subsidies can grow to damaging trade conflict
• corruption magnet: industries can bribe goverments to protect themselves
• domestic complacency: protected firms spend more effort protecting themselves than innovating
• reduced export competitiveness: businesses that import goods have to pay higher costs leading to their goods being more expensive

Question 5

graph for an open economy

Answer 5

Question 6

tariff graph

1. domestic quantity supplied before tariff
2. domestic total revenue before tariff
3. domestic quantity supplied after tariff
4. domestic total revenue after tariff
5. foreign quantity supplied before tariff
6. foreign total revenue before tariff
7. foreign quantity supplied after tariff
8. foreign total revenue after tariff
9. government tariff revenue
10. welfare loss

Answer 6

1. 0-Q₁
2. g
3. 0-Q₃
4. a+b+c+g+h
5. Q₁-Q₂
6. h+i+j+k
7. Q₁-Q₃
8. i+j

Question 7

quota graph

1. domestic revenue before quota
2. domestic revenue after quota
3. foreign revenue before quota
4. foreign revenue after quota
5. market inefficiency
6. welfare loss

Answer 7

1. a
2. a+f+i+j+c+d
3. b+c+d+e
4. b+g+h
5. j
6. k

Question 8

subsidy graph

1. domestic revenue before subsidy
2. domestic revenue after subsidy
3. foreign revenue before subsidy
4. foreign revenue after subsidy
5. government spending on subsidy
6. inefficiency

Answer 8

1. a
2. a+b+e+f+g
3. b+c+d
4. c+d
5. e+f+g
6. g

Question 9

export promotional subsidy

Answer 9

• if a subsidy is high enough a country can promote the export of their domestic production
• the domestic price can be lowered beneath the world price and the country can export the excess

Question 10

administrative barriers

Answer 10

• bureaucratic barriers: paperwork can frustrate potential importers
• product standards: health, safety and environmental standards can be used to exclude goods to market
• qualifications: providers of domestic services require specific qualifications which can exclude workers