Trade and trade barriers pt2

Question 1

Infant industries

Answer 1

New industries may not initially be able to compete with established overseas arrivals/no EOS. Protection in the short term from cheap imports can allow growth to take place

Question 2

Sunset industries

Answer 2

Old industries can be protected so they can be fazed out in an orderly way. Immobility of labour means workers cant move from one job to another overnight. There is a risk of structural unemployment

Question 3

Strategic trade theory

Answer 3

It argues that it is wrong to rely on free trade and existing comparative advantage. Some industries may need protection against unfair competition and subsidies.

Question 4

Avoiding over specialisation

Answer 4

Over specialisation is risky. If the market that is your specialism drops or the cost of raw materials you need sky rocket, your economy will have a serious problem. Government support/protection of other industries with the aim of diversifying national production may be justified.

Question 5

Anti dumping

Answer 5

Dumping is where a country produces more of a good then there is demand for and dumps the surplus on a foreign market. This can be very damaging to domestic industries unable to compete on price, without protection. There are rules against dumping to avoid this.

Question 6

Self sufficiency

Answer 6

A country may be concerned that, through specialisation, it could no longer support itself should it need to. Protecting vital industries could offer political justification for trade barriers.

Question 7

Employment

Answer 7

Some argue that low unemployment is so fundamental to the success of an economy that achieving it justifies protectionist policies.

Question 8

Closed economy graph explanation

Answer 8

In a closed economy, there are no imports or exports, so all domestic demand can only be met by domestic supply and there is an equilibrium (Q1P1).

Question 9

Open economy graph explanation

Answer 9

Free trade means that domestic demand can be met by supply from everywhere. The market price for a good globally may be lower than the domestic price. Price falls from P1 to Pw. At this price, demand increases to Q2 and supply decreases to Q3. The difference between Q2 and Q3 are the imports.