week 3 Trade Barriers :

Question 1

Free trade ? and its +

Answer 1

Is when countries can trade with no tariffs, quotas, embargo etc…
+ specialisation allows for comparative advantage (produce g/s at a lower opportunity cost)
decreased prices for consumers

Question 2

case against free trade ?

Answer 2

• protection of infant industries –> allows them to compete
• dumping / other unfair trade practices
  Supermarket -> lowering prices to get rid of competing companies, then putting them up
  Self sufficient
  Protection of human rights / env.

Question 3

What’s a small / Large country ?

Answer 3

Small –> things you do don’t affect the world price
country as a whole is worse off, domestic producers are better off.
Large –> things you do will affect the world price
DWL –> is not as big

Question 4

Optimal import tariff ?

Answer 4

In theory a large country can gain, but this requires information and may lead to retaliation. The redistributive issues and potential for interest group rent seeking remain too

Question 5

Trade policies effect :

Answer 5

Protectionist countries gain at the expense of others.
World as a whole is worse off.

Question 6

Protectionism is a dominant strategy.

Answer 6

The Great Depression led to protectionism = dramatic fall in world trade.
The GATT were established to prevent trade wars.