Restrictions on free trade (MAC)

Question 1

What are the reasons for restricting free trade?

Answer 1

to correct a deficit in the trade of goods and services balance

to prevent dumping

to reduce unemployment

to reduce the risk of disruption resulting from problems in the global economy

to prevent sectoral imbalance

to limit the monopoly power of global companies

Question 2

What are the types of restrictions on free trade?

Answer 2

Tariffs

Quotas

Subsidies to domestic producers

Non tariff barriers

Question 3

What is a tariff?

Answer 3

Are taxes on imported goods

Question 4

What is a quota?

Answer 4

Are limits on the quantity of a product imported

Question 5

What are subsidies to domestic producers?

Answer 5

Grants to a firm that reduce costs of production

Question 6

What are non tariff barriers?

Answer 6

Health and safety regulations

Environmental regulations

Labelling of products

Bureaucracy

Question 7

What is the impact of protectionist polices on consumers?

Answer 7

Tariffs and quotas result in higher prices and a reduction in both consumer surplus and consumer choice

Question 8

What is the impact of protectionist polices on producers?

Answer 8

Domestic firms face less competition and have less incentive to produce at lower average cost. Further, protectionist policies may cause retaliation by other countries who might impose tariffs on imports.

Question 9

What is the impact of protectionist polices on governments?

Answer 9

If tariffs are imposed a government would receive tax revenue. This might help reduce a fiscal deficit or increase a fiscal surplus.

Question 10

What is the impact of protectionist polices on living standards?

Answer 10

Protectionism distorts comparative advantage. This means that specialisation is reduced resulting in lower output.

Question 11

What is the impact of protectionist polices on equality?

Answer 11

Tariffs are indirect taxes and so may cause an increase in income inequality because they take no account of a persons income.