Restrictions on free trade Topic 9: aggregate demand and aggregate supply Restrictions on free trade

4.1.6 Restrictions on free trade Students should be able to: Give reasons for restrictions on free trade Analyse types of restrictions on trade: tariffs, quotas, subsidies to domestic producers, non-tariff barriers Evaluate the impact of protectionist policies on consumers, producers, governments, living standards and equality

Microeconomics Topic 1: The Economic Problem Protectionism Microeconomics Topic 1: The Economic Problem Free trade uses comparative advantage to maximise _____________ but countries still use protectionism too. What is protectionism?

Why do countries restrict free trade? Microeconomics Topic 1: The Economic Problem Why do countries restrict free trade?

Types of restrictions on trade Microeconomics Topic 1: The Economic Problem Tariffs Quotas Subsidies to domestic producers Non-tariff barriers

Microeconomics Topic 1: The Economic Problem Tariffs Microeconomics Topic 1: The Economic Problem What is a tariff? Also called customs duty or import duty What are tariffs used for?

Diagram showing impact of tariffs Microeconomics Topic 1: The Economic Problem Diagram showing impact of tariffs

Explanation of tariff diagram Microeconomics Topic 1: The Economic Problem Explanation of tariff diagram

Microeconomics Topic 1: The Economic Problem Expenditure Microeconomics Topic 1: The Economic Problem Expenditure on imports will fall from ___________ to _____________ Of that area, ______________ is the revenue gained by foreign firms and the rest will go to the ______________________

Deadweight welfare loss Microeconomics Topic 1: The Economic Problem Deadweight welfare loss Imposing a tariff will lead to a fall in consumer surplus of _______ as they’ll buy less (higher price) Domestic producers gain __________ producer surplus as they produce more at a higher price The loss of consumer surplus is more than the gain of producer surplus by KLBA Of this the government gets _________ in revenue So the deadweight loss to the country is _____ + _____ A B

Microeconomics Topic 1: The Economic Problem Quotas Microeconomics Topic 1: The Economic Problem What is a quota? What is the impact for domestic producers and for customers?

Explanation of quota graph Microeconomics Topic 1: The Economic Problem quota

Microeconomics Topic 1: The Economic Problem Quotas Microeconomics Topic 1: The Economic Problem quota

Microeconomics Topic 1: The Economic Problem Subsidies Microeconomics Topic 1: The Economic Problem Subsidies can be used to _________ exports and __________ imports Who typically is given export subsidies? Imports can be reduced by giving subsidies to ___________ firms that compete with foreign firms e.g. quota

Microeconomics Topic 1: The Economic Problem Non-tariff barriers Microeconomics Topic 1: The Economic Problem Quotas, embargoes, export subsidies and exchange controls are examples of non-tariff barriers Barriers can be imposed to reduce imports such as: In some countries governments may manipulate exchange rates (lower exchange rate so exports cheaper and imports more expensive). See 4.1.8 quota

Impact of protectionist policies (1) Microeconomics Topic 1: The Economic Problem Consumers Producers Workers Governments quota

Impact of protectionist policies (2) Microeconomics Topic 1: The Economic Problem Living standards: Equality: quota

Arguments for free trade (against protectionism) Microeconomics Topic 1: The Economic Problem BUT quota