Ch 24 - Free Trade and Protectionism

Comparative advantage

is distorted leading to inefficient use of world resources.

Government restrictions

are placed on the imports of foreign competitors (tariffs, quotas and subsidies)

Subsidy

: an amount of money paid by the government to a form per unit of output.

→ National

embargoes: marketing campaigns to encourage people to buy domestic goods.

Free trade

international trade (imports and exports) without government restrictions

Protectionism 

Protection of domestic industries against foreign competition 

Arguments for protectionism

• Protecting domestic employment 
• Protecting the economy from low cost labour 
• Protecting the economy from low cost labour 
• Protecting an infant (sunrise) industry 

Tariff

a tax that is charged on an imported good. Any tax will cause suppliers to supply less

Subsidy

an amount of money paid by the government to a form per unit of output 

Quotas

physical limit on the number of value of goods that can be imported to a country

Administrative barriers

When goods are imported there are always administrative processes

Embargoes

complete ban on imports 

Health, safety, and environmental standards

When restrictions are put on the type of goods that can sold in the domestic market 

Free trade

international trade (imports and exports) without government restrictions

Tariff

a tax that is charged on an imported good

Subsidy

an amount of money paid by the government to a form per unit of output

Quotas

physical limit on the number of value of goods that can be imported to a country

→ Embargoes

complete ban on imports

→ National embargoes

marketing campaigns to encourage people to buy domestic goods