Lesson 38-Protectionism

Question 1

Define protectionism

Answer 1

This refers to measures used by a govt of a country to protect it against harmful imports coming from other countries.

Question 2

4 reasons for protectionism

Answer 2

1.To avoid a BOP deficit- To prevent high imports from coming into the country which would lead lead to a deficit
2. To protect infant industries- This is because when cheaper imports come from other countries infant industries will not be able to compete as they have not reached the minimum efficient scale thus will not be able to compete
3. Prevent dumping
4. Reduce unemployment as high imports would mean that domestic businesses will go out of competition and will have to shut down which will cause unemployment when the business reduces their workforce.

Question 3

Define dumping

Answer 3

This refers to situation when other countries sell their goods to developing countries below their cost of production.

Question 4

Why is dumping done?

Answer 4

To capture local markets
To get rid of excess low quality products

Question 5

What are the methods of protectionism? 6

Answer 5

Tariffs
Quotas
Embargos
Exchange controls
Voluntary export restraints
Subsidies
Devaluation

Question 6

Define tariffs and why they are implemented

Answer 6

Tariffs are taxes on imports and are used to discourage imports and to earn revenue from these taxes. Taxes increase the cost of importing thus discouraging local individuals and firms from importing

Question 7

Define voluntary export restraints and why they are implemented

Answer 7

This refers to a friendly request by the govt of the importing country to the govt of exporting countries to limit its exports.

Question 7

3 disadvantages of protectionism

Answer 7

1.Higher prices- When the govt imposes tariffs and quotas it will mean that consumers will have to pay high prices leading to a reduction in the standard of living
2. Loss of choice- When the govt imposes various methods of protection it will restrict the choice of different goods available.
3. Retaliation- When one country imposes trade barriers on the countries goods, it will encourage that country to impose barriers on the country that imposed barriers in the first place.

Question 7

Define quotas and why they are implemented

Answer 7

This refers to a physical limitation on the number of goods coming into a country and can be used by the govt to cut down imports

Question 8

Define subsdies and why they are implemented

Answer 8

This is when the govt provides subsidies to local firms in the form of financial aid, grants, tax reliefs. Thus the cost of production of these local firms will be low thus enabling these firms to compete easily with foreign firms.

Question 8

Define exchange controls and why they are implemented

Answer 8

This refers to a situation when the govt of a country control the supply of foreign currency to importers with regard to imports. Thus when the supply of foreign currency is limited, importers will not be able to import.

Question 8

Define embargos and why they are implemented

Answer 8

This refers to a complete ban on imports coming from other countries. It is pursued for political reasons or sometimes for economic reasons. Ex- weapons