Restrictions On Free Trade

Question 1

4 types of restrictions on free trade

Answer 1

Tariffs
Quotas
Subsidies
Non-tariff barriers (health/safety regulations)

Learn diagram for tariff/quota

Question 2

Effects of tariffs on price, supply, demand, producers and consumers

Answer 2

Overall QD falls as more expensive
Domestic supply increases (benefits domestic producers)
Imports fall.
Consumer surplus loss (higher price)

Question 3

Effects of tariff on producers, consumers, government

Answer 3

Domestic producer surplus. Government tax revenue. Welfare losses on consumers now worse off

Question 4

4 reasons to restrict free trade/ for protectionism

Answer 4

1. Protect domestic employment
2. Protect infant industries
3. Prevent dumping
4. Health and Safety

Question 5

Protect domestic employment

Answer 5

Imports can draw consumers away from domestic goods, decreasing derived demand for domestic labour. Tariffs increase price to make domestic goods more competitive

Question 6

Prevent dumping

Answer 6

Foreign firms use predatory pricing to enter domestic markets and steal customers and force domestic firms out of the market

Question 7

Protect infant industries

Answer 7

Infant industries cannot compete with MNC’s as they do not have same E.O.S. Protectionist policies can be used to lower domestic costs and prices (subsidies) or increase price of imports (tariffs)

Question 8

Health and safety

Answer 8

Strict regulations on imports to follow can reduce imports

Question 9

Tariff setting evaluation

Answer 9

Market distortion, less choice, higher price, loss of consumer surplus

Retaliation-affects consumers more

Regressive

eval:
Size of tariff
PED/PES of imports (inelastic=smaller welfare loss as QD/QS does not fall by a lot)

Question 10

Quota evaluation

Answer 10

No tax revenue (bigger fall in welfare)
Can create shortages
More certain of amount of imports entering-tariffs are unknown as depends on PED
Removes risk of inelastic elasticities with tariffs and subsidies