Theme 4 Topic 3 - Protectionism and Trading Blocs

Question 1

Define Protectionism

Answer 1

Governments try to protect domestic industry such as by using tariffs or quotas on imports or providing subsidies to domestic firms

Question 2

Define Tariffs

Answer 2

Taxes placed on imports

Question 3

What are two purposes of tariffs?

Answer 3

A means of restricting trade from a particular country, Reducing the amount of importation of specific goods and services

Question 4

What are two impacts of tariffs on the home country?

Answer 4

Increases the price of imported goods so domestic producers are not forced to reduce prices, Cost of raw materials could increase if imported leading to higher production costs

Question 5

What is an impact of tariffs on companies wanting to export into the countries who use tariffs?

Answer 5

Prices will have to increase, making products less competitive in comparison to those in the countries imposing the tariffs

Question 6

Define Quota

Answer 6

A physical limit on how many goods can be imported into a country

Question 7

What are two purposes of quotas?

Answer 7

Help regulate the volume of trade between them and other countries, Boost domestic production by restricting foreign competition

Question 8

What are two impacts of quotas on the home country?

Answer 8

Reduced competition so higher sales, Prices can be higher as there is less cheap competition - leads to higher profit margins

Question 9

What are two impacts of quotas on companies wanting to export into the countries who use quotas?

Answer 9

Exports will be lower so sales in the country using the quota will be lower, Prices will have to be lower to remain competitive - leads to lower profit margins

Question 10

Define Subsidies

Answer 10

Payments made by the government to suppliers that reduce their costs

Question 11

What are three examples of subsidies

Answer 11

Grants, interest free loans, tax breaks

Question 12

What is the purpose of subsidies?

Answer 12

To encourage domestic production and consumption in specific industries

Question 13

What are two impacts of subsidies on the home country?

Answer 13

It can help give domestic producers a competitive advantage against foreign rival firms, By helping exporting firms it can make it easier to break into foreign markets

Question 14

What is an impact of subsidies on companies wanting to export into the countries who use subsidies?

Answer 14

More competition from home countries as they have higher output, Home businesses might have lower prices due to lower costs which increases competitiveness

Question 15

Define Embargo

Answer 15

An extreme form of quota where imports are completely banned from a country

Question 16

What are four uses of protectionism?

Answer 16

Protect jobs, Raise taxation revenue through tariffs, Improve the balance of import and export payments, Prevent dumping

Question 17

Define Dumping

Answer 17

Exporting large quantities of a product to another country at a price below the normal price with the intent to have an injuring effect

Question 18

What is a problem of trade barriers?

Answer 18

Countries often retaliate when barriers are imposed to trade

Question 19

How can government regulations be used as trade barriers?

Answer 19

If a government insists that imported goods have to meet specific regulations and specifications it can help prevent entry of imports

Question 20

Define Trade Bloc

Answer 20

A group of countries that sign a region trade agreement to reduce or eliminate tariffs, quotas and other protectionist

Question 21

Why might countries prefer to trade with closer countries?

Answer 21

Cultural similarities or quicker and cheaper transport logistics

Question 22

Define Free Trade Area (FTA)

Answer 22

Exist where member states remove all barriers between each other (e.g. tariffs and quotas), but each member state keeps different trade barriers with non-member states e.g. NAFTA

Question 23

Define Single Market

Answer 23

Not only removes trade barriers between countries but has common laws and policies and enables free movement of workers between the countries e.g. EU

Question 24

What are four opportunities of trading blocs for businesses?

Answer 24

Increased market size so higher sales potential, Economies of scale are possible due to increased sales volume, Easier access to resources, May enable trading bloc to negotiate more favourable terms with other countries

Question 25

What are five drawbacks of trading blocs for businesses?

Answer 25

Countries outside bloc may retaliate against tariffs imposed by bloc, Increased competition from efficient countries in the bloc, Competition could drive down prices making it harder to make a profit, Bureaucracy and legislation, Labour regulations