Ch38 - Protectionism

• What is protectionism?

  The approach used by governments to protect domestic producers
• What are trade barriers?

  Measures designed to restrict imports
• What is dumping?

  Overseas firms sell products below cost
• What are infant industries?

  New industries yet to establish themselves
• What does it mean to retaliate?

  To take action against someone who harmed you
• What are the reasons for protectionism?

  • Preventing dumping
  • Protecting employment
  • Protecting infant industries
  • Gaining tariff revenue
  • Preventing harmful goods
  • Reducing current deficits
  • Retaliation
• Why is preventing dumping a reason for protectionism?

  To stop foreign producers from selling below cost
• How does protectionism protect employment?

  By shielding domestic industries from overseas competition
• Why protect infant industries?

  To allow them to grow and become competitive
• How does gaining tariff revenue benefit the government?

  Funds can improve government services and living standards
• Why prevent the entry of harmful goods?

  To protect consumers from dangerous products
• How can trade barriers reduce current deficits?

  By decreasing imports and increasing exports
• What is retaliation in trade?

  Imposing heavy taxes on dumped goods
• What is a potential consequence of retaliation?

  It can result in a trade war
• What is a tariff?

  A special tax on imported goods
• How do tariffs affect demand for imports?

  They make imports more expensive
• What is a quota?

  A physical limit on the number of goods imported
• How do quotas protect domestic producers?

  By reducing competition from imports
• What is the effect of subsidies on domestic producers?

  They lower production costs and increase supply
• What is a downside of subsidies for the government?

  They incur high opportunity costs
• How do tariffs and quotas differ in their impact on imports?

  Tariffs raise prices, quotas limit quantity
• What are the potential negative effects of protectionism on consumers?

  Higher prices and limited choices
• How might protectionism affect domestic producers' efficiency?

  They may become overprotected and inefficient