Restrictions on Free Trade

Question 1

Types of restrictions on free trade?

Answer 1

• tariffs
• quotas
• subsidies to domestic producers
• non-tariff barriers (health and safety regulations)

Question 2

Tariff axis

Answer 2

y-axis - price
x-axis - quantity

Question 3

Effects of tariffs on producers, consumers and government

Answer 3

• increase in domestic producer surplus (trapezium)
• government receive tax rev (square in middle)
• increase prices for consumers (welfare loss = two triangles)

Question 4

Non-tariff barriers

Answer 4

• health and safety regulation
• label regulation
• environmental regulation

Question 5

Reasons to restrict free trade

Answer 5

• prevent dumping (predatory pricing on international scale)
• protecting domestic employment (more imports, less domestic output, less derived demand)
• protecting infant industries (no EOS need help to compete)
• health and safety