Week 16 Flashcards
Free trade definition
when goods are freely traded between countries without any interference from subsidies, tariffs, quotas or trade barriers
welfare impact for consumers with free trade
with free trade there is a big expansion of consumers surplus because price goes down and the quantity we consume increases
welfare impact for producers with free trade
producer surplus reduced dramatically because only producers that can produce at the lower price can operate in the market
what is the gain on a free trade graph
- triangle in the middle
due to increase available of lower priced goods within the domestic market
trade protection definition
Policies which aim to increase the production of domestically produced goods at the expense of foreign imports
How does trade protection work
have to sacrifice some welfare gain to protect domestic production
what are 4 reasons that UK should use trade protection
- Protect large sunset industries
- support an infant/sunrise industry
- protect strategic industry (energy providing, fracking)
- manage dumping
- raise tax revenue (from tariffs)
- maintain product standards
- correct a trade deficit
dumping definition
when countries sell surplus supplies abroad at less than cost price to manage over supply within domestic markets
4 issues of trade protection
- negative for consumers
- although good for domestic firms they can become complacent > inefficient and noncompetitive
- reduces global efficiency
- retaliation
what are 5 forms of trade protection
- tariffs/duties
- subsidies
- quotas
- embargoes
- trade barriers
tariff/duties definition
a tax on imported goods
subsidies definition
a government payment to suppliers to reduce the net cost of production
quotas definition
a physical limit on the volume of imports permitted
embargoes definition
a complete ban on imports
trade barriers definition
measures which artificially deter the level of imports
