Topic 3- Protectionism

Question 1

protectionism

Answer 1

Any method or policy (e.g tarrifs and quotas) which protects domestic producers from international competition by restricting trade

Question 2

Methods of protectionism (short)

Answer 2

• tarrifs
• quotas
• administrative regulations
• subsidies to domestic producers

Question 3

Methods of protectionism with explanation:

tariff

Answer 3

A tariff/import duty/customers duty is a tax on imported goods. Reasons: they are used in order to restrict imports as they are likely to raise the final price of goods to the consumer (although some foreign suppliers may absorb all the tariff to prevent this from happening).

• A ^ in the price of gds>fall in d&volume of import will fall
• helps domestic producers as c’s will switch from imported good to domestically produced substitutes due to the imposition of a tariff

Question 4

Methods of protectionism with explanation:

Quotas

Answer 4

A quota is a limit on the quantity of imports. The quota has the same effects on producers and consumers as tariffs.

Question 5

Methods of protectionism with explanation:

Subsidies to domestic producers

Answer 5

subsidies are governments grants to firms which reduce costs of production>causing the supply curve of domestic producers to shift to the right

Question 6

Reasons to justify protectionism (4 reasons) (short)

Answer 6

• the infant industry argument
• job protection
• Dumping
• Cheap labour

Question 7

Reasons to justify protectionism:
The infant industry argument

Eval

Answer 7

-New industries face much higher costs than foreign competitors this may be because they have large economies of scale in the industry
-new low volume producers will find it hard to compete on p against an established foreign high volume producer
-once it is sufficiently large tariff barriers are removed&industry able to compete properly with foreign industries
Eval: gov may not know if industry will be successful & industries protected by trade barriers lack competition pressure to become efficient as used to being protected

Question 8

Reasons to justify protectionism:

Job protection

Answer 8

-protectionism can create/preserve jobs as firms will still need employees if consumers are buying their goods but if tariff barriers were removed then consumers would purchase goods from foreign industries
Eval: In the LR jobs wont be protected because protectionist policies are temporary

Question 9

Reasons to justify protectionism

Dumping

Answer 9

-it is the sale of goods below their average cost of production. Countries may do this because: they have over produced (excess capacity in SR& products sold below average total costs as long as that price at least covers the variable cost), product failed to find a market, deliberately lowering prices to drive out domestic producers