Unit 4.2 - Types of Trade Protection

All 43 cards in this deck

Every term and definition, free to read. Hit study above to practice them as flashcards.

A regulation specifying only certain ingredients for beer.

Reinheitsgebot

Bans on trade with a certain country, often due to disputes.

embargoes

Deliberate government actions to shield local producers from outside competition.

Protectionism

Trade restrictions limiting how much foreign currency domestic residents may buy or sell — daily caps on what tourists or investors can convert, for instance.

exchange controls

Import controls

Regulations imposed by governments to manage the quantity and quality of goods imported into a country. These controls can include tariffs, quotas, and licensing, often aimed at protecting local industries.

bureaucratic rules

Standards and regulations imposed by governments on foreign firms, serving as trade protection that can increase costs for imports and favor domestic industries.

importation

The process of bringing goods and services into a country, which can be restricted by administrative barriers such as customs controls. These barriers protect domestic industries by limiting foreign competition, as seen in the example of the Chinese publishing industry.

Protectionist devices such as quotas, subsidies and administrative rules that restrict imports without taxing them.

Non-tariff barriers

Quantitative restrictions placed on the amount of a good that can be imported into a country.

Quotas

The measurement of how far the quantity demanded or supplied responds to a change in what a good sells for.

price elasticity

Domestic supply

The total quantity of a good that domestic producers are willing and able to sell at various prices. Changes in domestic supply can occur due to factors like government policies or shifts in production costs.

Import licence

A permit required by governments for the importation of certain goods, which can limit supply and generate revenue for the government while potentially leading to higher prices for consumers due to restricted imports.

Perfectly price elastic (world supply)

A situation where the world supply of a good is infinitely responsive to changes in price, meaning that the quantity supplied can meet any level of demand at a constant price. This often occurs in markets with abundant resources.

A financial incentive designed to support firms that focus on exporting.HL

export subsidy

State the formula: Government expenditureHL

Government expenditure = Subsidy per unit × Post-subsidy domestic supply Government expenditure = Subsidy per unit × Post-subsidy domestic quantity supplied

foreign producer revenueHL

The income earned by foreign producers from selling goods in a domestic market. This revenue can fluctuate based on trade policies like tariffs and quotas that affect the quantity of goods sold.

market efficiencyHL

A measure of how well resources are allocated in a market, where the output is maximized without waste. Inefficiencies can arise from subsidies that lead to overproduction beyond what is optimal.

Financial assistance designed to lower the expenses for domestic producers.

production subsidy

State the formula: 2 × 60,000

2 × 60,000 = 120,000 Numerical example: a $2 per unit subsidy with 60,000 units produced yields a government cost of $120,000.

State the formula: Total cost to the government of the subsidy

Government expenditure = subsidy per unit × post-subsidy domestic output Total cost to the government of the subsidy is calculated by multiplying the amount paid per unit by the quantity produced domestically after the subsidy.

domestic production

Financial assistance from the government to producers that reduces costs and encourages production, allowing domestic firms to compete against foreign producers. This can lead to increased domestic output and employment while affecting import levels.

World Trade OrganizationHL

An international organization that promotes freer and fairer trade between nations. Member countries are subject to rules and may face penalties, such as fines or sanctions, for violating trade agreements.

import supplyHL

The total quantity of goods that foreign producers are willing to sell to a domestic market at various prices. This concept is crucial for understanding how governments might limit imports to protect local industries.

A specific tax applied to goods and services brought into a country.

tariff

Free trade

A trade policy where goods and services can be traded across borders without tariffs or restrictions, allowing for competitive pricing and greater variety for consumers. It often leads to lower prices due to increased supply from foreign producers.

Specific tax

A tax imposed specifically on imported goods and services, aimed at raising production costs for foreign firms. This makes domestic goods more competitive by increasing the price of imports, thus protecting local industries.

imported goods

Goods and services brought into a country from abroad, which can be subject to tariffs aimed at increasing their cost and making domestic goods more competitive.

world supply

The supply available from the rest of the world, assumed in the tariff and quota diagrams to be perfectly price elastic — the importing country can buy any quantity at the world price. A tariff shifts this curve up by the amount of the tax.

State the formula: Area of a triangle (Area of a triangle)HL

Area of a triangle = (base × height) / 2 Used to calculate triangular consumer or producer surplus and deadweight loss areas on linear diagrams.

State the formula: Change in consumer surplusHL

Change in consumer surplus = New consumer surplus – Old consumer surplus This formula determines the difference in consumer surplus before and after a tariff.

State the formula: Consumer expenditureHL

Consumer expenditure = Price × Quantity demanded Consumer expenditure = Quantity demanded × Price Consumer expenditure = Price paid by consumers × Quantity demanded

State the formula: Government revenueHL

Government revenue = Tariff × Quantity of imports demanded Government revenue = Import licence fee × Number of import licences

State the formula: Pre/post consumer surplus (from text)HL

Pre/post consumer surplus (from text) = Quantity demanded × (Price intercept of demand − Price) Shortcut used in the extract for linear demand to compute triangular consumer surplus.

State the formula: Pre/post domestic producer surplus (from text)HL

Pre/post domestic producer surplus (from text) = Domestic quantity supplied × (Price − Price intercept of supply) Shortcut used in the extract for linear supply to compute triangular producer surplus.

State the formula: Producer revenueHL

Producer revenue = Price × Quantity Producer revenue = Price received by producers × Quantity supplied

State the formula: Quantity of importsHL

Quantity of imports = Quantity demanded − Domestic quantity supplied Amount imported at the prevailing price equals national demand minus domestic supply.

State the formula: difference in producer surplus before and after a tariffHL

Change in producer surplus = New producer surplus – Old producer surplus This formula calculates the difference in producer surplus before and after a tariff.

consumer expenditureHL

The total amount of money spent by consumers on a good or service, calculated as the product of the price and the quantity demanded. In the context of tariffs, consumer expenditure can increase even if consumer surplus decreases due to higher prices.

deadweight loss (welfare loss)HL

A loss of economic efficiency that occurs when equilibrium for a good or service is not achieved or is not achievable. This results in a reduction of total welfare in the market, often due to factors like tariffs that create a gap between consumer and producer surplus.

expenditureHL

The total amount spent by consumers on goods and services. Changes in expenditure can result from tariffs that raise prices, affecting consumer surplus and overall market dynamics.

foreign producersHL

Producers located outside a domestic market who supply goods to that market. Their revenue can be affected by tariffs and quotas imposed by the importing country, influencing their competitiveness.

producer revenueHL

The total income received by producers from selling goods or services, calculated as the product of the price and the quantity sold. Changes in producer revenue can indicate the effects of tariffs, as domestic producers may see increases while foreign producers may experience declines.

quantity of importsHL

The amount of goods that a country brings in from abroad, calculated as the difference between domestic demand and domestic supply. This figure can change with tariffs or shifts in consumer preferences.