Free trade and trading blocs

• What are the 4 main types of trade barriers on free trade?


  Tariffs, quotas, subsidies, and non-tariff barriers
• What is free trade?


  Occurs when countries can trade without any restrictions or barriers
• What is the other name for trade barriers?


  Protectionist polices
• What is a tariff?


  A tax places on a foreign import by a government
• What is a quota?


  A strict limit on the quantity of imports that don't produce any government revenue
• What are subsidies in terms of trade barriers?


  Government given grants to domestic firms
• What are non-tariff barriers?


  Restrictions on free trade such as health and safety regulation
• What are the reasons for trade restrictions?


  To prevent dumping, to protect domestic employment, to protect infant economies and for health and safter reasons
• What is dumping?


  Predatory pricing on a global scale which can force domestic competitors out of the market
• How does providing subsidies for domestic firms protect infant economies?


  It protects emerging economies without economies of scale like big foreign firms
• How do trade restrictions protect domestic employment?


  As foreign firms may have lower costs due to economies to scale it may decrease the demand for domestic firms and lead to unemployment
• What is a trading blocs?


  Groups formed between countries where they agree to remove all trade barriers
• What are free trade areas in terms of trading blocs?


  When members of trading bloc are free to set barriers to all non-member countries
• What is a customs union in terms of trading blocs?


  When members of the trading bloc must have a common external tariff for all non-member countries
• What is a common market in terms of trading blocs?


  When members of the trading bloc have a common external tariff for non-member countries but allow FOP's to freely travel between member countries
• What is a monetary union in terms of trading blocs?


  When members of the trading bloc have a common external tariff for non-member countries but all members share a common currency
• What effect do trading blocs have on the economy?


  They create additional trade for members but also divert trade away from non-member countries due to external tariffs