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By Mrs Hilton for revisionstation A2 Economics and Business The purpose of tariffs, laws and import quotas.

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1 By Mrs Hilton for revisionstation A2 Economics and Business The purpose of tariffs, laws and import quotas

2 Lesson objectives To be able to define tariffs, laws and import quotas To be able to identify why tariffs, laws and import quotas are used To be able to answer past paper questions on the topic

3 From the spec The purpose of tariffs, laws, import quotas. Why tariffs, laws or import quotas are used, for example to protect domestic industries or balance of trade. Constraints on businesses that these barriers provide.

4 Starter In teams define: 1.A Tariff 2. An Import Quotas What is the difference?

5 Define tariff a tariff is a tax placed on an import to increase its price and decrease its demand Tax can be imposed by governments to raise revenue and to restrict imports A tariff is likely to raise the final price to the consumer – therefore a fall in demand for the goods Consumers will switch consumption to domestic goods

6 Tariff A Tax on traded goods (imported or exported) by governments Could be to make imports unattractive to locals (so they buy British) so they buy domestic goods instead. – They could be a specific amount £1 per unit. – or they could be (10% of price) Tariffs are an important barrier to free trade. They are often imposed to protect domestic industry from cheap imports. However, it often leads to retaliation with other countries placing tariffs on their exports. (see next slide) Reduction in tariffs therefore creates trade

7 Reasons for Imposing Tariffs Raise revenue. If a country produces no oil, levying a tax on oil imports will raise money as importers have no alternative but to pay import tariff. Environmental. A tariff could be placed on goods which may have negative externalities. Protectionism. The most common reason for a tariff. Imposing import tariffs makes domestic firms more competitive.

8 Advantages and disadvantages of imposing tariffs Advantage Home produced goods do not incur the tariff and so are likely to be cheaper The people who do benefit are the home producers and their employees Tariff protection allows them to sell more because they gain a price advantage compared to imports Home producers gain price advantage Better job security Protect new businesses Aid economic growth of the home country Raise revenue for government spending possibly on infrastructure Reduces imports so improves balance of trade Protects domestic infant industries so they have a chance to flourish before being swamped by cheaper imports Disadvantage High import price won’t put many off Unfair competition Tariff may just increase prices for consumers Restricts the volume of trade Other countries may impose their tariffs in response to this on their imports

9 Problems of Tariffs story/mwh/usa/problems_video.shtml story/mwh/usa/problems_video.shtml Stop at the end of the world is at hand A case to get rid of tariffs

10 Define Import quota A quota is a physical limit on the quantity of a good imported. It is an example of a physical control. Imposing a limit on the quantity of goods that are imported will increase the share of the market available for domestic products (made in the home country)

11 Start to build a fact file on 1) tariffs and 2) quotas sinessStudies/TheoryNotes/Edexcel/Unit3/3_4_3 /3_4_3.swf sinessStudies/TheoryNotes/Edexcel/Unit3/3_4_3 /3_4_3.swf Create a collaborative mindmap https://bubbl.us/ https://bubbl.us/ Exporting: of-mange-tout/4505.html of-mange-tout/4505.html

12 Protectionism The process of imposing tariffs and quotas on imports to protect domestic industry If a country imposes a tariff it is likely that the other country will impose a retaliatory tariff back on them.

13 Causes problems between countries

14 Trade liberalisation Trade liberalisation involves removing barriers to trade such as tariffs on imports. Free Trade areas will have no tariffs between member states, though they may have a common external tariff if it is a trade bloc (such as the EU).

15 During the period between the First and Second World Wars there were unusually high tariffs between countries, which reduced the volume of world trade. When peace was re-established following World War II, representatives of 44 countries met at the United Nations Monetary and Financial Conference in New Hampshire, to discuss the rebuilding of Europe and issues such as high trade barriers and unstable exchange rates. The outcome was an agreement (referred to as the Bretton Woods Agreement) outlining an international system of free trade, convertible currencies, and fixed exchange rates. As part of the Bretton Woods Agreement, the GATT was established in 1947 to reduce barriers to international trade between nations. Under the GATT, countries met periodically for negotiations, called “rounds,” to lower trade restrictions between countries. Each round is named for the country in which the meeting took place. The Uruguay Round of negotiations, which lasted from 1986 to 1994, established the World Trade Organisation (WTO) on January 1, 1995.

16 Protectionism t0&feature=related t0&feature=related Summarise arguments for and against protectionism 4Q&feature=related 4Q&feature=related Non-tariff barriers

17 Trade agreements - CEFTA CEFTA is a trade agreement between Non-EU countries in Central and South-Eastern Europe. The agreement aims at establishing a free trade zone in the region by 31 December As of 1 May 2007, the parties of the CEFTA agreement are: Kosovo, Albania, Bosnia and Herzegovina, Macedonia, Moldova, Montenegro and Serbia. CEFTA- central European free trade agreement

18 Trade agreements – ASEAN The Association of Southeast Asian Nations (ASEAN) was formed in 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand to promote political and economic cooperation and regional stability. Video

19 Trade agreements - EU There are no trade barriers between EU member states – this is called the single market Businesses don’t pay tax when they import goods from other EU countries The EU provides export opportunities for UK firms 27 member countries includes UK Video

20 Trade agreements - NAFTA NAFTA The North American Free Trade Agreement (NAFTA) is a treaty entered into by the United States, Canada, and Mexico; it went into effect on January 1, Video

21 Sample question 1 Explain two likely reasons why India might impose high tariffs on imports such as cosmetics. [6]

22 Answer question 1 Knowledge 2, Application 2, Analysis 2 Knowledge: up to 2 marks are available for describing what a tariff is and/or saying what it is used for, e.g. a tariff is a tax placed on an import to increase its price and decrease its demand Application: up to 2 marks are available for relating the above giving two reasons as to why they might be imposed e.g. to protect Indian cosmetic businesses from outside competition or to raise revenue for government spending Analysis: up to 2 marks are available for developing the reasons e.g. giving infant industries a chance to grow without being swamped by foreign competition thus preserving much needed employment or that an increased stream of revenue may be useful for the Indian government in order to fund investment in infrastructure and aid economic growth.

23 Sample question 2 [12]

24 How marks are awarded for Q1 [12] LevelMark awarded 11-2Knowledge 23-4Application 35-7Analysis 48-12Evaluation

25 e.g. The WTO helps to promote international trade and reduce barriers to trade. MNCs are companies that trade/operate in more than one country. e.g. The WTO’s increasing membership may be expected to benefit multinationals like Dell, much was made of China’s recent accession. Trade liberalisation is the key here, the theory is that this has many benefits including easing access to new or restricted markets for multinationals. e.g. Ukraine may be used as an example (not essential) as both a potential market for the multinationals and a potential base for their operations. For companies like Dell facing saturated and competitive markets in the west and selling relatively income elastic products this is a potentially lucrative market. It may also be a low cost base from which to produce their products. e.g responses may point out that just because a country joins the WTO it does not automatically attract MNCs. Neither does it necessarily mean free trade; access to China is still heavily regulated by the authorities. e.g. candidate develops evaluation by perhaps discussing short and long run situations. Cynics may question the efficacy of the WTO in achieving its aims. More countries engaging in trade may actually mean more competition for an MNC like Dell.

26 Sample question 3 [6]

27

28

29 Answer question 3

30 Sample question 4 [8]

31 Answer question 4

32 Sample question 5 [6]

33

34 Answer question 5 Knowledge 2, Application 2, Analysis 2 Knowledge: up to 2 marks (one for each reason) for identifying possible reasons. e.g. protecting infant or domestic industries, retaliation, raise revenue from tariffs, distrust caused by recent political conflicts, cultural damage Application: up to 2 marks (one for each reason) for contextual answers such as linking the above specifically to the countries of CEFTA e.g. small (and in some cases new) countries, keen to grow and join EU. e.g. Serbia has GDP growth rate of 1.5%. Analysis: up to 2 marks (one for each reason) are for developing the reasons e.g. giving infant industries the chance to grow big enough to ensure future prosperity. Revenue from tariff can be used as reinvestment in the infrastructure. Negative GDP growth in some countries, e.g. Croatia (-1.5%) may increase reluctance to remove trade barriers. If only one reason cap at 3 marks

35 Revision video - tariffs Students don’t need to know how to draw the tariff graph but instead understand how it works

36 Revision video - quotas Students don’t need to know how to draw the quota graph but instead understand how it works

37 Revision video – trade Blocs


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