Edexcel (A) Economics A-level

Transcription

1 Edexcel (A) Ecnmics A-level Theme 4: A Glbal Perspective 4.1 Internatinal Ecnmics Restrictins n free trade Ntes

2 Reasns fr restrictins n free trade: Prtectinism is the act f guarding a cuntry s industries frm freign cmpetitin, by impsing restrictins n free trade. If a cuntry emplyed several prtectinist measures, then a trade deficit wuld reduce. This is because they will be imprting less due t tariffs and qutas n imprts. Infant industries might need prtecting. These are industries which are relatively new and need supprt. Prtectinism is usually shrt term until the industry develps, at which pint the industry can trade freely. It is based n the cncept f new industries facing high start-up csts, which fall as the industry develps. In rder t help the industry survive, it receives supprt. Prtectinism culd be used t crrect market failure. It can deal with demerit gds and prtect sciety frm them. Gvernments might want t prtect dmestic jbs and avid them being ffshred. Sme cuntries might impse trade restrictins as a frm f retaliatin against trade barriers impsed by ther cuntries. Types f restrictins n trade: Tariffs Tariffs are taxes n imprts t a cuntry. It culd lead t retaliatin, s exprts might decrease. The impact f tariffs is that the quantity demanded f dmestic gds increases, whilst the quantity demanded f imprts decreases. Tariffs result in higher prices fr cnsumers and a lss in cnsumer surplus.

3 The tariff diagram illustrates the effects f impsing a tariff. The riginal quantity f imprts is Q2 Q1, and the new quantity f imprts is Q4 Q3. The purple shaded rectangle shws the revenue the gvernment gains frm impsing the tariff. This culd help finance gvernment expenditure. The tw blue triangles shw the area f deadweight lss f welfare, as a result f the tariff. Qutas A quta limits the quantity f a freign prduced gd that is sld n the dmestic market. It sets a physical limit n a specific gd imprted in a set amunt f time. It leads t a rise in the price f the gd fr dmestic cnsumers, s they becme wrse ff. Subsidies t dmestic prducers This makes dmestic gds relatively cheap cmpared t imprts. It encurages dmestic prductin t increase, as shwn by a right shift in the supply curve, and the average price falls.

4 Hwever, it depends hw the subsidy is spent. In the EU, the Cmmn Agricultural Plicy subsidises dmestic farming. This helps the UK retain sme srt f primary sectr. The subsidy might encurage a surplus t be prduced, which culd be wasteful. It als depends n gvernment finances, and it shuld be cnsidered whether the industry is wrth subsidising r nt. Nn-tariff barriers Vluntary exprt restraints (VERs) This is when tw cuntries make an agreement t limit the vlume f exprts t ne anther ver a perid f time. They are used when gvernments want t prtect dmestic industries frm cmpeting imprts. It is usually suggested by the exprting cuntry, t avid even less flexible trade barriers being impsed. Embarges This is the cmplete ban n trade with a particular cuntry. It is usually plitically mtivated.

5 Excessive administrative burdens ( red tape ) Excessive administratin increases the cst f trading, and hence discurages imprts. It makes it difficult t trade with cuntries impsing red tape, and is particularly harmful fr develping cuntries which are unable t access these markets. It is harder t ntice this type f prtectinism. Impact f prtectinist plicies n cnsumers, prducers, gvernments, living standards and equality: Prtectinism culd distrt the market and lead t a lss f allcative efficiency. It prevents industries frm cmpeting in a cmpetitive market and there is a lss f cnsumer welfare. Cnsumers face higher prices and less variety. By nt cmpeting in a cmpetitive market, firms have little r n incentive t lwer their csts f prductin. It impses an extra cst n exprters, which culd lwer utput and damage the ecnmy. Tariffs are regressive and are mst damaging t thse n lw and fixed incmes, which culd increase incme and wealth inequality. Hwever, taxes culd raise mre revenue fr the gvernment, which culd be used t redistribute incme t the pr r imprve public services. There is a risk f retaliatin frm ther cuntries, s cuntries might becme hstile. Prtectinism culd lead t gvernment failure.