economics 4.2 types of trade protection

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9 Terms

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types of trade protection

  1. tariff

  2. quota

  3. subsidy ( protection, export)

  4. administrative barriers

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tariff

tax on imported goods

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benefit of tariff (2) - government, domestic firms

  1. increase government revenue - subsidising domestic firms - decrease production cost, increase competitiveness

  2. benefit domestic firms - increase total revenue , increase profit - producer surplus rises

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limitations of tariff

  1. uncertainty on reduction of import - if product price inelastic - demand for product will not decrease quantity

  2. risk of retaliation - other countries also set tariff as retaliation - lower consumer surplus

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subsidy

government grant to local producers to reduce their costs of production and improve price competitiveness

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protection subsidy

sum of money which the government provides to domestic producers for producing each unit of the subsidized good.

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export subsidy

sum of money which the government provides to domestic producers for each unit of the subsidized good exported.

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advantage of subsidy

  • improve competitiveness of local products - producer total revenue increase - more profit for reinvestment for long run

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limitation of subsidy

  • opportunity cost of government budget

  • risk of government failure