Transcript Trade Protectionism

Trade protectionism
1
What is Protectionism?
Trade protectionism is the policy that restricts the
volume of ______
trade and, in particular, the volume of
imports
________.
Measures:
1. Tariffs
2. Import quota
3. Voluntary export restraint programmes
4. Production subsidies
5. Embargoes
6. Foreign exchange control
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Tariffs
imported goods
 A tariff is a tax on _____________.
 On an _________
ad valorembasis or a ________
per unit basis.
 An extra tax on top of the regular tariff$100
is called
$50surcharge
$50 .
import
an _______________
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What are the economic effects of
tariffs?
Price ($)
S1
t
P1
S0
P0
 The price of imports will
_______.
increase
 The amount of imports
will ________.
decrease
D
Q1Q0
Imports
Amount of tariff revenue
tariff rate × the quantity imported
= ______________________________
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Import Quota
The_________
maximum limit on the quantity of goods that can
imported into a country.
be ___________
No more
quota!
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What are the economic effects of a
quota?
Price ($)
S1
S0
P1
 Part of the supply curve
vertical at
becomes ________
the quota limit.
 The price of imported
increases
goods _________.
P0
D
Q1
Q0
 The amount of imports
decreases
Imports ________.
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What are the economic effects of a
quota?
Price ($)
S1
S0
P1
P0
 The effect on the total
expenditure on imported
uncertain
goods is ________,
depending on the _______
elasticity
of
demand for imports.
_________
 If the demand for imports is
D
Q1
Q0
Imports
inelastic, total expenditure
will ________.
increase
Increase in total expenditure
Trade protectionism
Decrease in total expenditure
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Voluntary Export Restraint Programmes
 Importing country sets a limit on the __________
maximum
export volume for the exporting country.
 Below this limit, the imported goods will be taxed
at a _______
lower tariff rate.
 If the limit is exceeded, the extra imports will be
taxed at a much _______
higher tariff rate.
 It is voluntary in the sense that the exporting
country can ______
freely decide the amount of exports
given the tariff structure imposed by the
importing country.
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Production Subsidies
 Subsidies to the local producers lower the
cost
of production and the ______
price of the locally
_______________
produced goods.
Effects:
 Since locally produced goods and foreign goods
substitutes for each other, the demand for
are _________
decrease
imports will ________.
 Therefore, the volume of imports will ________.
decrease
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Embargoes
ban on trade.
 A _____
 Can be either a _____
total embargo or a ______
partial embargo.
Total embargo
Partial embargo
No ivory products
Iraq
Ivory
products
Embargo imposed by the Trade protectionismThe ban in ivory products
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UN on Iraq
Foreign Exchange Control
 The government controls the ____________
exchange rate and the
availability of ________________.
foreign currencies
$A / US$ 1
Foreign currencies
on market
$A / Euro 1.1
Exchange rate
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Foreign Exchange Control
Effects:
 More difficult and costly for importers to obtain
________________.
foreign currencies
 As _____
less foreign currency is available to pay for
foreign goods, import will ________.
decrease
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Quiz One
A tariff restricts the price of imports only while a
quota restricts the quantity of imports only.
Explain whether this statement is correct or not.
True / False.
A tariff _______
raises the prices and ______
lowers the
quantity of imports; a quota _______
reduces the
supply and _______
raises the prices of imports.
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Quiz Two
To restrict the amount of imports, using a quota is
more effective than imposing a tariff. Why?
The amount of reduction in imports by tariff
depends on the ___________________
elasticity of demand for
______ whereas the import quota directly
imports
restricts the _________
maximum amount of imports.
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Quiz Three
If the government increases the amount of perunit tariff, the tariff revenue will increase.
Explain whether this statement is correct or not.
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Quiz Three
Price ($)
S0: supply curve before tariff
S2
S1
S1: supply curve after imposing
the original tariff
S2: supply curve after imposing
the new (higher) tariff
S0
P2
P1
P0
D
Q2 Q1 Q0
Quantity
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Gain in tariff revenue
Loss in tariff revenue
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Quiz Three
Price ($)
S2
P2
P1
P0
Q2 Q1 Q0
The effect of increasing the
per-unit tariff amount depends
S1
S0
on the gain in total tariff
revenue due to ______________
an increase in
the
tariff rate and the loss in
______________
tariff revenue due to ________
a smaller
quantity imported
D _________________.
Quantity
Trade protectionism
Gain in tariff revenue
Loss in tariff revenue
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End
Quiz Three
Price ($)
If the demand for imports is
inelastic, the gain in tariff
revenue will be greater
_______ than
the loss in tariff revenue and
the total tariff revenue will
________, vice versa.
increase
S2
S1
S0
P2
P1
P0
D
Q2 Q1 Q0
Quantity
Trade protectionism
Gain in tariff revenue
Loss in tariff revenue
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