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PROTECTIONISM

PROTECTIONISM. at the end of the lesson you should be able to : identify the various protectionistic measures effects of tariffs graphically. PROTECTIONISM.

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PROTECTIONISM

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  1. PROTECTIONISM at the end of the lesson you should be able to : • identify the various protectionistic measures • effects of tariffs graphically

  2. PROTECTIONISM • Means by which trade between countries is restricted in some way – normally through measures to reduce the number of imports coming into a country

  3. PROTECTIONISM • Main means are: • Tariffs • Quotas • Subsidies • Disguised Barriers

  4. Tariff • A tax on a good coming into a country • Increases the price of the good and makes it less competitive

  5. Tariffs P Sdom Ddom O Q fig

  6. Tariffs P Sdom S world PW Ddom O Q fig

  7. Tariffs P Sdomestic S world PW Ddomestic O Q2 Q1 Q fig

  8. Tariffs P Sdomestic a c b S world PW Ddomestic O Q2 Q1 Q fig

  9. Tariffs P Sdomestic a PW + t S world+ tariff Tariff c b S world PW Ddomestic O Q2 Q1 Q fig

  10. Tariffs P Sdomestic a PW + t S world+ tariff Tariff b c S world PW Ddomestic O Q4 Q2 Q3 Q1 Q fig

  11. Tariffs P Sdomestic a d e PW + t S world+ tariff Tariff b c S world PW Ddomestic O Q4 Q2 Q3 Q1 Q fig

  12. Tariif effects – quantity imported • before tariff, imports = ____ • after tariff, imports = ____

  13. Tariif effects -consumer surplus • before tariff consumer surplus = ____ • after tariff consumer surplus = ____

  14. Tariffs P Sdomestic a d e PW + t S world+ tariff Tariff 1 3 4 b c 2 S world PW f Ddomestic O Q4 Q2 Q3 Q1 Q fig

  15. Tariif effects -consumer surplus loss of consumer surplus = ?

  16. Tariffs P Sdomestic a d e PW + t S world+ tariff Tariff 1 3 4 b c 2 S world PW f Ddomestic O Q4 Q2 Q3 Q1 Q fig

  17. Tariif effects -consumer surplus area 1 = area 3 =

  18. QUOTA • Physical restrictionon the number of goods coming into a country

  19. Impact of a Quota on Steel Quota level Price of Steel (US $ per Kg) S The quota restricts the supply to a set amount (250 in the example) which is likely to result in a shortage of this good and a subsequent rise in its price. Pre-trade position before a quota. 30 20 D 250 500 Quantity of Steel Bought and Sold from Abroad

  20. Subsidies • aid given to certain domestic industries to protect them from competition of cheaper imported goods. • An export subsidy is a grant to domestic producers who export goods abroad to help them compete in foreign markets.

  21. Exchange control • This is a quota fixed in terms of foreign currencies. This means to restrict the volume of domestic currency leaving one's country. e.g. UK wants to reduce imports from USA, they will fix the total USD to be bought by Britons. Once the amount of USD is exhausted, no further imports from USA can enter UK

  22. disguised/ administrative barriers -Rules • Regulations • Voluntary Restraint Agreements (VRAs) • Legislation • Exacting Standards or Specifications

  23. disguised/ administrative barriers • Examples include setting exacting standards on fuel emissions from cars, the documentation required to be able to sell drugs in different countries, the ingredients in products – some of which may be banned in the destination country • such barriers are difficult to prove – when do you accuse a country of protectionism – could be a legal or cultural issue? • The main method involved in such barriers is not to prevent trade but to make the cost of doing so prohibitive to the potential exporter

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