Theme 4: Restrictions on free trade Flashcards
What is a trade barrier?
Restriction placed by the government on the import of a foreign good. One example of this is a tariff which is a tax paid on imports.
What are the 4 key types of restrictions on free trade?
- Tariff
- Quotas
- Subsidies
- Non-tariff barriers
What is a tariff?
A tariff is a tax paid on imports. It creates a barrier to trade.
What are tariffs sometimes know as?
Custom duties or import duties
Draw a tariff diagram? and explain
Show the effect on domestic producers of a tariff
A- An increase in domestic producer surplus
Show the effect of a tariff on the government
C- Tax revenue
Show the effect of a tariff on consumers?
B and C shows welfare loss
What is a quota?
Limit on quantity of imports
What are the two drawbacks of quotas?
- Raise no tax revenue
- Create severe shortage
What are the two drawbacks of quotas?
- Raise no tax revenue
- Create severe shortage
Why are subsidies to domestic producers considered a restriction to free trade?
Makes the good cheaper encouraging people to buy theirs so increases exports and decreases imports so reduces free trade.
What are examples of non-tariff barriers?
Non-tariff barriers include regulations regarding health and safety, environmental regulations and correct labelling of products to show a best before date.
what are non tariff barriers?
Restrict free trade by setting rules and regulations for imports to follow.
What are the 4 reasons to restrict free trade?
- Prevent dumping
- Protecting domestic employment
- Protecting infant industries
- Health and safety
