Theme 4: Restrictions on free trade Flashcards
What is a trade barrier?
Restriction placed by the government on the import of a foreign good. One example of this is a tariff which is a tax paid on imports.
What are the 4 key types of restrictions on free trade?
- Tariff
- Quotas
- Subsidies
- Non-tariff barriers
What is a tariff?
A tariff is a tax paid on imports. It creates a barrier to trade.
What are tariffs sometimes know as?
Custom duties or import duties
Draw a tariff diagram? and explain
Show the effect on domestic producers of a tariff
A- An increase in domestic producer surplus
Show the effect of a tariff on the government
C- Tax revenue
Show the effect of a tariff on consumers?
B and C shows welfare loss
What is a quota?
Limit on quantity of imports
What are the two drawbacks of quotas?
- Raise no tax revenue
- Create severe shortage
What are the two drawbacks of quotas?
- Raise no tax revenue
- Create severe shortage
Why are subsidies to domestic producers considered a restriction to free trade?
Makes the good cheaper encouraging people to buy theirs so increases exports and decreases imports so reduces free trade.
What are examples of non-tariff barriers?
Non-tariff barriers include regulations regarding health and safety, environmental regulations and correct labelling of products to show a best before date.
what are non tariff barriers?
Restrict free trade by setting rules and regulations for imports to follow.
What are the 4 reasons to restrict free trade?
- Prevent dumping
- Protecting domestic employment
- Protecting infant industries
- Health and safety
What are the 4 reasons to restrict free trade?
- Prevent dumping
- Protecting domestic employment
- Protecting infant industries
- Health and safety
What is dumping?
Predatory pricing on an international scale
Why might the government use restrictions to free trade to protect infant industries?
As the industry is too small and new to benefit from economies of scale so cannot compete.
