4.1.6 Restrictions On Free Trade

Question 1

4.1.6a
Reasons for Restrictions on Free Trade

Answer 1

• Infant Industries
• Job protection
• Dumping
• Unfair Competition
• ToT
• Dangers of Overspecialisation

Question 2

4.1.6b
Types of Trade Restrictions

Answer 2

• Tariffs
• Quotas
• Subsidies for domestic producers
• non-tariff barriers

Question 3

4.1.6b
Tariffs Diagram

Answer 3

DIAGRAM

Question 4

4.1.6b
Tariffs advantages

Answer 4

• Taxes places on imported goods = more expensive to buy imports = domestic C less likely to buy imports = more domestic consumption = local industries / firms do well = more AD
• more domestic C = less import C = current account surplus as exports > imports
• more govt revenue from tariffs = investment domestically

Question 5

4.1.6
Tariffs Disadvantages

Answer 5

• less choice for C = less C surplus
  -↑ import prices = ↑ production costs for firms using imports = ↑ cost-push inflation

Question 6

4.1.6b
Quota Diagram

Answer 6

DIAGRAM

Question 7

4.1.6b
Quota Advantages

Answer 7

↓ quantity of imported goods allowed = artificial scarcity
↑ prices of imported goods
↑ demand for domestic substitutes as cheaper
↑ domestic output + ↑ employment (short-run)

• ↓ trade deficit (as fewer imports)

Question 8

4.1.6b
Quota Disdvantages

Answer 8

Less competition = less efficiency + higher prices for C

Question 9

4.1.6b
Subsidy Advantages

Answer 9

Government gives subsidy
= ↓ production costs for domestic firms
= ↓ prices of domestic goods
= ↑ competitiveness vs imports
= ↑ domestic sales + ↓ imports
= ↑ domestic employment

Question 10

4.1.6b
Subsidy Disadvantages

Answer 10

• high govt costs = opp cost Healthcare/education
• risk of retaliation via WTO

Question 11

4.1.6b
Non-Tariff Barriers

Answer 11

• regulations
• Embargo
• bureaucracy

Question 12

4.1.6b
Non-Tariff Barriers Advantages

Answer 12

Stricter product standards / regulations
→ ↑ compliance costs for foreign firms
= ↓ imports (especially from low-cost countries)
→ ↑ domestic firm sales
= ↑ domestic output + ↑ employment

Question 13

4.1.6b
Non-Tariff Barriers Disdvantages

Answer 13

↑ admin burden = ↑ cost for all firms
• possible reduction in consumer choice
• if unjustified, may violate WTO rules
→ trade disputes or retaliatory measures

Question 14

4.1.6c
Impact of Protectionism on Consumers

Answer 14

• ↓ imports or ↑ price of import = ↓ competition for domestic firms = ↑ market power = ↑ prices for consumers
• ↓ choice = ↓ consumer surplus + ↓ standard of living
• risk of retaliatory tariffs = ↑ prices on imported goods elsewhere (e.g. food, electronics) = disproportionate impact on low-income households =↑ inequality

Question 15

4.1.6c
Impact of Protectionism on Producers

Question 16

4.1.6c
Impact of Protectionism on Governments

Question 17

4.1.6c
Impact of Protectionism on Living Standard

Question 18

4.1.6c
Impact of Protectionism on Equality