A) Protectionism: o tariffs and import quotas (with diagrammatic…

The idea

Protectionism involves government intervention to restrict international trade and shield domestic industries from foreign competition. Tariffs are taxes on imports that raise their price; on a diagram, this shifts the perfectly elastic world supply curve upwards by the tariff amount, reducing import volumes and generating government revenue. Import quotas set a physical limit on the quantity of a good imported, raising domestic prices but generating no tariff revenue. Other trade barriers include government legislation, such as strict safety standards that foreign firms struggle to meet, acting as hidden protectionism. Domestic subsidies lower production costs for local firms, shifting their supply curve rightwards, allowing them to undercut foreign competitors without directly taxing imports.

What earns the marks

• Draw and interpret tariff diagrams showing the upward shift of world supply, changes in consumer and producer surplus, and government revenue.
• Draw and interpret quota diagrams illustrating the physical restriction on imports and the resulting price increase.
• Explain how government legislation and administrative barriers act as non-tariff barriers to trade.
• Analyse the impact of domestic subsidies on the competitiveness of local firms and the volume of imports.

Common mistakes and how to put them right

• Shifting the domestic supply curve instead of the world supply curve when drawing a tariff diagram.

  Put it right: The tariff increases the price of imports, so shift the perfectly elastic world supply curve upwards by the amount of the tariff.

• Assuming import quotas generate revenue for the domestic government.

  Put it right: Quotas do not generate government revenue unless the government sells the import licenses; the extra profit usually goes to the foreign producers.

• Confusing domestic subsidies with export subsidies.

  Put it right: Domestic subsidies lower costs for all domestic production, reducing the need for imports, whereas export subsidies specifically target goods sold abroad.

Exam tips

• Practice drawing tariff diagrams accurately, ensuring you can clearly shade the areas representing government revenue and deadweight welfare loss.
• When discussing non-tariff barriers, use specific examples of government legislation, such as complex customs procedures or stringent product standards.
• Compare the welfare effects of tariffs and subsidies; subsidies often cause less distortion to domestic consumption patterns than tariffs.