Restrictions on Free Trades Flashcards
Reasons for restriction on free trade
- Prevent dumping
- Protecting domestic employment
- Protecting infant industries
- Health and safety
Types of restrictions on trade
Tariffs,
quotas,
subsides,
non trade barriers (product specifications, health and safety regulation)
Define non tariff barriers
Measures to protect consumers,
Designed to raise importer cost of production.
Impact of protectionism on consumers
- Higher prices of goods
- Less choice
- Lower quality
Impact of protectionism on producers
Tariff
1. Higher sales, output and profit from fewer competition
- Some firms may suffer if they import goods to sell or components to produce
Subsidy
- Subsidies may make export more competitive
Protectionism impact on government
- More tax revenue from tariffs
- Protects income tax and avoid unemployment benefits
EV
3. May lose out revenue if economy becomes inefficient due to tariffs, their benefits or tax revenue may decrease in the future
Define protectionism
Attempts to impose trade restrictions in goods and services
Define free trade
Trade conducted between countries without use of trade barriers such as tariff, quota.
Define trade barriers
Measures that artificially reduces international trade
Define quota
Limit on quantity of imports
Define tariff
A tax on imported goods
Define dumping
When firms sell product abroad in export at below prices in the home market
Protectionist policy impact on equality
Bad
1. Worsened for low end households as imports become more expensive
Good
1. Good, government can use revenue received from tariff to distribute income to the poor
Protectionist policy impact on living standards
Good:
1. Living standards improve as local jobs and firms increase and protected
Bad:
1. Living standards worsen if slower economic growth as firms are less incentivised to be competitive, leading to slower economic growth
- Fewer choice -> lower standard of living
