Theme 4 Flashcards
what is protectionism?
where governments introduce policies to try and protect domestic firms at the expense of overseas companies looking to import into the market
why might governments introduce protectionist policies?
-to protect jobs inside the nation
-could raise additional revenue through tariffs
-encourage demand for domestic goods and services
-prevent dumping
what are the forms of protectionism?
-tariffs
-quotas
-subsidies and loans
-technical barriers to trade
what is a tariff?
a tax on imported goods overseas firms have to pay
what is a quota?
it sets a limit on how many goods can be imported in a given time period
what are technical barriers to trade?
laws on goods and services sold in the country; this could increase the costs for foreign businesses as they could have to change their product to meet the standards
what are the positive impacts on domestic firms of protectionist policies?
-helps competitiveness; it allows them to be more price competitive with overseas rivals. this could increase the demand for their goods and services which could make them more profitable
what are the negative impacts on domestic firms of protectionist policies?
many of them rely on components and raw materials imported form abroad. this could damage the domestic firms as a tariff could increase their costs
what are the impacts of protectionist policies on overseas businesses?
they can avoid protectionist policies by setting up production in overseas countries making them exempt as they become a domestic producer. although this could be expensive so the firm would have to be confident that the market is lucrative enough
what is free trade?
the idea that a government isnt going to discriminate against goods imported in its economy which should increase trade between nations
what is specialisation?
when an economy specialises in a narrower range of goods and services that employment will centre around.
what does specialisation allow?
it allows countries to trade with nations that specialise in something that they do not specialise in themselves
what are the benefits of free trade?
-gives consumers access to lower price goods
-gives consumers a greater choice of goods
-gives businesses access to foreign markets; they can sell overseas without tariffs or quotas
-business could take advantage of cheaper raw materials without protectionist costs
what are the drawbacks of free trade?
the benefits might not be experienced by all businesses-e.g. small businesses face more competition from imported goods.
-they might also not be able to remain competitive as they can produce as cheaply
what is a trading bloc?
a group of nations that have agreed to work together to reduce protectionist policies between all nations in the bloc to increase free trade.
what are the different types of trading bloc?
-preferential trade area
-free trade area
-customs union
-economic union
what is a preferential trade area?
where countries decide protectionist policies like tariffs or quotas, but only on specific goods and services
what is a free trade area?
where countries in the bloc agree to remove all barriers to trade allowing nations to trade freely with all goods and services. However they have the power to make trade agreements with nations outside the bloc
what is a customs union?
it allows free trade between nations in the bloc where all nations develop a common external barrier, which means that all countries inside the bloc have an agreed level of protectionism with countries outside the bloc
what feature might a customs union have?
they might have a common external tariff, where every nation inside the bloc has the same trading deal with countries outside the bloc
what is a common market?
where there is free trade between all the members of the bloc and common external barrier to nations outside the bloc, but also free movement of capital and labour as well as goods and services
what is an economic union?
there is free trade between all countries in the bloc with shared external barriers and tariffs to countries outside the bloc. they have free movement of goods, labour and capital but also share policies such as currencies, setting interest rates for every nation inside the bloc
