3.2 Free Trade vs Protectionism

Question 1

Free trade

Answer 1

free trade takes place when there are no barriers to trade from international organisations or government

Question 2

arguments for free trade

Answer 2

• increase variety
• import inputs for production
• allow countries to specialise in the production of the good for which they are best at (i.e. lowest opp cost/comparative advantage)
• to take advantage of economies of scale
• increase competition
• technology transfer

Question 3

Protectionism is…

Answer 3

where a country erects barriers against trade to protect the domestic economy from the disadvantages of free trade

Question 4

All arguments of protection

Answer 4

protecting domestic employments
- sunset industries
- low cost labour competitors
protect sunrise industries
overspecialisation risks
- poor terms of trade
- overdependence on 1 or 2 products
strategic reasons/National security
to prevent dumping
product standards
raise govt rev
correct balance of payments deficit