9708 · 6.2
Protectionism flashcards
Revision flashcards for Cambridge 9708 Protectionism (syllabus 6.2). Flip, recall, then mark a real past-paper question.
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What is protectionism?
Government policies that restrict international trade to protect domestic industries — tariffs, quotas, subsidies to domestic firms, and regulations.
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Effect of a tariff on domestic price?
Domestic price rises from world price (Pw) toward Pw + tariff — imports become more expensive relative to domestic goods.
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Who gains and loses from a tariff?
Gainers: domestic producers (higher price, more sales), government (tariff revenue). Losers: consumers (higher prices, lower surplus), efficiency (deadweight loss).
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What is deadweight loss from a tariff?
Lost economic welfare from trades that no longer occur — triangles representing foregone consumer and producer surplus not captured by anyone.
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Infant industry argument?
Temporary protection allows new industries to reach efficient scale before facing foreign competition — may fail if protection becomes permanent.
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Trade creation vs trade diversion?
Trade creation: customs union switches to lower-cost member supplier (efficient). Trade diversion: switches from efficient non-member to less efficient member (inefficient).
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What is a tariff?
A tax imposed by a government on imported goods or services. It increases the price of the imported good for domestic consumers, making domestic alternatives more competitive.
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What is an import quota?
A physical limit on the quantity of a specific good that can be imported into a country over a given period. It restricts supply and raises the domestic market price.
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Define 'deadweight loss' in the context of a tariff.
The net loss of economic welfare that occurs when a tariff is imposed. It represents the loss of consumer surplus that is not transferred to either domestic producers or the government. It is shown by two triangles on a trade diagram representing production and consumption inefficiency.
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What is the 'infant industry' argument for protectionism?
The argument that new, developing domestic industries need to be protected from established foreign competition until they are mature enough to compete internationally. This is intended as a temporary measure to allow them to achieve economies of scale.
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What is 'quota rent'?
The extra profit that domestic importers can make when a quota is imposed. It is the difference between the higher domestic price and the world price, multiplied by the quantity of imports allowed. This revenue goes to the licence holder, not the government.
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What is an export subsidy?
A payment from the government to a domestic firm for each unit of a good it exports. It lowers the price for foreign consumers, helping the firm gain market share, but it is a cost to taxpayers and can be seen as unfair competition.
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What is 'dumping' in international trade?
The practice of a firm exporting a product at a price lower than the price it normally charges in its own home market, or below its cost of production. It is often seen as a predatory pricing strategy.
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What is a voluntary export restraint (VER)?
A self-imposed limit on the quantity of a good that an exporting country agrees to export to another country. It is often 'voluntary' only in the sense that it is made to avoid a more stringent tariff or quota.