Study Notes
Trade protection involves government intervention in international trade through trade restrictions to protect the domestic economy from international competition. It can also preserve foreign currency reserves and serve as a political tool.
- Tariffs — indirect taxes levied on imports to protect domestic industries and raise government revenue. Example: A tariff increases the price of imported goods, reducing imports and increasing domestic production.
- Quotas — legal limits on the quantity of a good that can be imported over a period. Example: A quota limits imports, raises domestic prices, and shifts domestic supply.
- Stakeholder Effects — impacts on domestic producers, consumers, government, and foreign producers. Example: Tariffs increase domestic producer revenue but decrease consumer surplus.
Exam Tips
Key Definitions to Remember
- Tariffs
- Quotas
- Stakeholder Effects
Common Confusions
- Confusing tariffs with quotas
- Misunderstanding the impact on consumer and producer surplus
Typical Exam Questions
- What is a tariff? A tariff is an indirect tax on imports.
- How do quotas affect domestic prices? Quotas limit imports, raising domestic prices.
- What is the effect of tariffs on government revenue? Tariffs increase government revenue through taxes.
What Examiners Usually Test
- Understanding of trade protection mechanisms
- Ability to analyze stakeholder impacts
- Calculation of changes in surplus and revenue