Protectionism and Globalization Flashcards
What is protectionism?
It occurs when governments protect their own domestic producers against foreign competition
What is free trade?
No restrictions in trade
What does protectionism prevent?
Free trade, as it introduces barriers to trade
Who are the World Trade Organisation?
An international body that promotes free trade by persuading countries to abolish import tariffs and other barriers
What does the World Trade Organisation encourage?
Fair and efficient trade between all countries
What are the reasons for protectionism?
Retaliate against the protectionist measures of other governments, protect industries that are strategically important, infant industry argument, protect jobs in certain industry’s and of a struggling industry
What are the methods of protectionism?
Tariffs, quotas, legal restrictions, voluntary export restraints and government intervention to keep its currency low in value
What are import tariffs?
Taxes placed on selected products from overseas
What are there consequences of import tariffs?
Consumers pay a higher price and buy less, the government earns a tax revenue, loss of consumer surplus and more producer surplus for domestic producer
What is the effect of an import tariff?
It increases producer surplus, finances inefficient domestic producers, increases tax revenue and reduces consumer surplus
What does an import quota mean?
There is a limit placed on the number of products from a particular country e.g. max goods allowed to be imported
What does an import quota do?
Increases the price, foreign firms receives a higher price and there is a loss in consumer surplus
What is the opposite of an import quota?
Subsidy
What is a subsidy on domestic products?
At the same price level, the domestic firms product more, and at the same world price, less is imported
What is globalization?
It refers to the increasingly open borders across the world in terms of trade and the greater integration of economies
