Restriction On Free Trade

Question 1

What does free trade do?

Answer 1

Free trade aims to maximise global output based on the principle of comparative advantage

Question 2

What are the reasons for free trade (protectionism)?

Answer 2

Infant industries
Sunset industries
Strategic industries
Dumping
Employment
Current account deficit
Labour/environmental regulations

Question 3

What are the types of protectionism?

Answer 3

Tariffs
Quotas
Subsidies to domestic producers
Non-tariff barriers

Question 4

What is a tariff?

Answer 4

A tariff is a tax on imported goods/services (customs duty)
Domestic producers/retailers have to pay the tariff when the good/service crosses the border into the country

Question 5

What is a quota?

Answer 5

A quota is a physical limit on imports
This limit is usually set below the free market level of import
SPICED

Question 6

What is a subsidy to domestic producers?

Answer 6

A subsidy lowers the cost of production for domestic firms
They can increase output & lower prices

Question 7

What is a non-tariff barrier?

Answer 7

There are many strategies that can be used to create barriers to trade using less obvious methods than tariffs, quotas & subsidies such as:
Health & safety regulations
Product specifications
Environmental regulations
Product labelling