3.1.4 trade policy and trade negotiations
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46 Terms
What is protectionism
restricting free trade to protect domestic industries
Why might protectionism reduce a trade deficit
imports fall due to tariffs and quotas
What is an infant industry
a new industry that needs temporary protection to grow
Why might infant industries need protection
high start-up costs fall as production increases
How can protectionism correct market failure
by restricting demerit goods
Why might governments protect domestic jobs
to prevent offshoring
Why might countries use protectionism as retaliation
to respond to trade barriers imposed by others
What is a tariff
a tax on imports
What is the effect of tariffs on imports
imported goods become more expensive so demand falls
How do tariffs affect domestic producers
demand for domestic goods rises
How do tariffs affect consumers
higher prices and lower consumer surplus
What revenue do tariffs generate
government tax revenue
What is deadweight loss from tariffs
loss of economic welfare
What is a quota
a physical limit on the quantity of imports
How do quotas affect prices
prices rise due to restricted supply
Who loses from quotas
domestic consumers
What is a subsidy to domestic producers
government financial support to reduce costs
How do subsidies affect supply
supply increases and prices fall
What is a disadvantage of subsidies
overproduction and waste
What is a voluntary export restraint
an agreement to limit exports
Why are VERs used
to protect domestic industries
Who usually suggests VERs
exporting countries
What is an embargo
a total ban on trade
Why are embargoes used
political reasons
What is red tape
excessive administrative barriers to trade
Why is red tape harmful
it raises costs and discourages imports
How does protectionism affect allocative efficiency
it causes inefficiency
How does protectionism affect consumer welfare
higher prices and less choice
Why might firms become inefficient under protectionism
less competition
Why are tariffs regressive
they hit low and fixed income consumers hardest
How could tariff revenue reduce inequality
funding redistribution or public services
What is a major risk of protectionism
retaliation from other countries
What is the G20
a group of major economies
What is the aim of the G20
promote global financial stability
What is a criticism of the G20
excludes many developing countries
What does the WTO do
promotes free trade and enforces rules
How does the WTO resolve disputes
acts as a judge
What happens if WTO rules are broken
trade sanctions
What is a difficulty faced by the WTO
agricultural disputes
How can trading blocs conflict with WTO rules
common external tariffs
Why do some countries criticise the WTO
developing country concerns
What are the Bretton Woods Institutions
World Bank and IMF
What is the role of the World Bank
development and poverty reduction
What is the role of the IMF
monetary stability and balance of payments support
What is a bilateral trade agreement
trade agreement between two countries
What is an advantage of bilateral agreements
simpler negotiations