protectionism - tariffs

Question 1

what is protectionism?

Answer 1

• Protectionism is when a government seeks to protect domestic industries from foreign competition
• by making it harder and more expensive for overseas companies to export your country

Question 2

what is tariff?

Answer 2

• a tariff is a tax placed on an import
• restrict imports
• idea = consumers switch to a domestically produced product

Question 3

what does tariffs do to price and demand?

Answer 3

• increase its price = consumer
• decrease demand

Question 4

why impacts do tariffs have on the government?

Answer 4

• raise revenue
• correct a trade imbalance (imports>exports)

Question 5

what impact do tariffs have on domestic businesses?

Answer 5

• increased demand for their product over foreign competition
• they become more competitive
• more revenue, profit and growth
• protects local businesses from foreign competition = can help domestic brands when their products become technologically obsolete or internationally uncompetitive

Question 6

what impacts do tariffs have on foreign businesses?

Answer 6

• loss of demand = loss of revenue
• a reduction in production can mean loss of jobs
• charge higher to make a profit = lose competitive advantage

Question 7

advantages of tariffs

Answer 7

• job creation and security
• more profitable businesses
• supports economic growth GDP
• governments can use tax revenue to improve services and infrastructure
• limit dumping (where foreign goods flood domestic markets at low prices)
• can stop poor-quality products from entering the economy

Question 8

disadvantages of tariffs

Answer 8

• overreliance on the tariff by domestic producers
• reduce trade opportunities due to retaliation
• inelastic PED renders tariff ineffective
• consumers pay higher price - loss of disposable income on other things
• reduces consumer choice
• reduces competition = domestic businesses become inefficient