Tariffs, laws & import quotas HARRIET BENNETT

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  • Tariffs, laws & import quotas 3.3.4
    • why create barriers to trade?
      • to stop cheaper foreign imports from replacing domestic substitutes, leading to business closure & job losses
      • To protect 'infant' industries. if they are shielded from foreign competition they can grow enough to reach maturity.
      • the balance of trade is important. Reducing imports helps to avoid a trade deficit. if jobs are lost this is a drain on the economy, there is a loss of tax revenue & an increase in benefits paid & is politically damaging
      • tariffs are a useful source of tax revenue which can help fund public expenditure; this can be particularly useful for emerging economies
      • Often protectionistmeasures are put into place as a means of retaliation against other countries' protectionist measures
    • Tariffs
      • Tariffs are a tax placed on imported goods to increase their price
      • the supply curve shifts to the left. this causes the price to increase. the quantity consumed of the import will fall as consumers either do without, or purchase a domestic substitute instead.
      • the effectiveness of a tariff depends upon the price elasticity of demand for the import
      • if it is price inelastic the reduction in demand for the import may be limited
    • Quotas
      • a quota sets a maximum quantity of a specific product that can be allowed into the country in one year.
      • the effect is to raise the price & cause quantity consumed to fall
      • Again the effectivenessof this will depend on the price elasticity of demand for the import.
    • Other forms of protectionism
      • Subsidies can help domestic industries lower their prices & remain competitive against imports & more successful as exports
      • keeping the exchange rate undervalued makes imports more expensive. China is often accused of keeping its exchange rate artificially low
      • Imposing regulations such as safety standards can make it more difficult for imports to enter the country. Some countries have used it just to avoid stiff competition from particular imported products


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