4.1.6 - Restrictions On Free Trade

Question 1

What Is Protectionism / Protectionist Policies?

Answer 1

Barriers to trade, to protect domestic firms from foreign competition.

Question 2

What Are The Reasons For Protectionism?
(7 Points)

Answer 2

~ Protect infant industries.

~ Give more time to sunset industries.

~ Protect against dumping.

~ Protect against unfair low cost labour abroad.

~ Protect domestic employment.

~ Raise government revenue.

~ Labour / environmental regulations.

Question 3

What Are The 4 Types Of Restrictions On Trade?

Answer 3

~ Tariffs.

~ Quotas.

~ Domestic subsidies.

~ Administrative barriers.

Question 4

Describe Tariffs
(3 Points)

Answer 4

~ Tax on imported goods and services, raising the price.

~ Raising cost of production for domestic firms.

~ Higher prices allow domestic firms to increase their output, due to the law of supply.

Question 5

Describe The Tariff Diagram
(5 Points)

Answer 5

~ WS = Supply from foreign firms, who produce the goods at cheaper rates, leading to cheaper prices.

~ Increases price, decreases imports.

~ A = Increase in domestic producer surplus.

~ C = Tax revenue for governments.

~ B + D = Welfare loss.

Question 6

Describe Quotas
(2 Points)

Answer 6

~ Quantity limit on imports.

~ Forcing people to buy domestic goods.

Question 7

Describe Domestic Subsidies
(3 Points)

Answer 7

~ Lowers the cost of production for domestic firms.

~ Encouraging them to increase their output and be more price competitive.

~ Can increase employment.

Question 8

Describe Administrative Barriers
(3 Points)

Answer 8

~ Red tape.

~ Standards and regulations.

~ Import licensing.

Question 9

What Are The Impacts Of Protectionist Policies?
(4 Points)

Answer 9

~ Higher prices, less choice and less consumer surplus.

~ Production inefficiencies.

~ Retaliation.

~ Regressive effect.