A.

Explain the difference in the way tariffs and quotas operate as method of
protectionism. (8)

A tariff is a tax imposed by a government on goods and services imported from other countries,
and a quota is a government-imposed trade restriction that limits the number or monetary
value of goods that a country can import or export during a particular period.
Protectionism is the practice of following protectionist trade policies. A protectionist trade
policy allows the government of a country to promote domestic producers, and thereby boost
the domestic production of goods and services by imposing tariffs or otherwise limiting foreign
goods and services in the marketplace. JANETTE

A tariff operates a method of protectionism because a tariff is a tax on imports, which can
either be specific (so much per unit of sale) or ad valorem (a percentage of the price of the
product). Tariffs reduce supply and raise the price of imports. This gives domestic equivalents a
comparative advantage. As such, tariffs are distorting the market forces and may prevent
consumers from gaining the benefit of all the advantages of international specialization and
trade.

The impact of tariffs

Price S
Tariff Revenue

S world + tariff

S World

0 Quantity
Q1 Q2 Q3 Q4

The tariff has the effect of shifting the world supply curve vertically upwards by the amount of
the tariff. The level of imports will fall from Q1Q4 to Q2Q3. The government will also raise
revenue, shown by the silver shaded area. The level of domestic production will increase from
0Qa to 0Qb.

Quotas operate as method of protectionism because Import quotas are put in place to limit the
number of products that can be imported over a set period of time. The purpose of quotas is to
limit the supply of specified products provided by an exporter to an importer. This is typically a
less drastic action which has a marginal effect on prices and leads to higher demand for
domestic businesses to cover the shortfall. Quotas may also be put in place to prevent
dumping, which occurs when foreign producers export products at prices lower than
production costs.
 Price The effect of quotas
S (domestic)
S (domestic)
Quota + quota

P quota

P world
A B C D
Q1 Q2 Q3 Q4 Quantity

The market price is defined as (P world). So Q1 and Q4 are the imports before the
quota and the areas A, B, C are world exporters making revenue. So, when the government
introduces quotas it leads to a fall in imports to Q3-Q2. Suppliers gain more revenue. The price
rises to P quota and domestic suppliers, supply more Q1 to Q2. It can create domestic jobs.
Consumers pay a higher price and also total quantity falls from Q4 to Q3.
B) Discuss the extent to which free trade should always be preferred to protectionism. (12) 
The free trade pact between two or more nations is to reduce barriers to import and export
among them. This treats usually involves a mutual reduction in duties, taxes, and tariffs so that
the economy of every country can benefit from varieties of trade opportunities.
The benefit of free trade is that countries can exploit their comparative advantages, which
leads to a higher output using fewer resources and increases world GDP, therefore, this
improve living standard. JANETTE
With the protection lifted off them, they are encouraging to become true global competitors.
This would better quality of production and turn it efficient. Foreign direct investments would
also be made a possibility thus booting countries economy as the possibility of expanding
domestic industries is made available. JANETTE
Free trade also increases competition and efficiency, this means that firms will have to compete
with goods and services imported from overseas. This helps them to become more efficient and
increase their sales and this will lead to lower prices to the consumers. For example, Algerian
farms producing cereals and animals’ products such as wool will have to produce these
products for a similar price and quality as imported cereals and wool otherwise Algerian
consumers will simply buy them from producers overseas. However, this rapidly growing
economy is threatening many established businesses in developed economies and new, small
businesses trying to grow in many less developed economies. Established businesses may lose
market share and may even be forced to close if cannot compete with large overseas
businesses. Also, some small businesses may also be unable to if consumers in their countries
are able to buy imported products far more cheaply than locally made products. 
The concept of free trade is the opposite of protectionism. Protectionism happens or was
created because of economic conflicts, some developed countries fear they will lose jobs as it
becomes cheaper to imported goods and services overseas than to produce them domestically,
or if production is moved overseas to countries where costs, such as wages, land prices and
taxes on profits, maybe lower. This, in turn, can lead to a loss of incomes, lower tax revenue,
slower or even negative economic growth, and falling welfare. In conclusion, the government
decided to introduced trade barriers to protect firms and jobs in their economies, this is called
protectionism. It can be tariffs, quotas, or subsidies. Firstly, tariffs are taxes on imports to a
country. It could lead to retaliation, so exports might decrease. The impact of tariffs is that the
quantity demanded of domestic goods increases, whilst the quantity demanded of imports
decreases. However, tariffs lead to higher prices for consumers and a loss in consumer surplus.
Quotas limit the quantity of foreign-produced goods that are sold on the domestic market it
sets a physical limit on a specific good imported in a set amount of time. It leads to a rise in the
price of the good for domestic consumers, so they will become worse off. 
The benefit of protectionism is to protect the infant industries, this gives new firms the chance
to develop, grow, and become globally competitive. New or small businesses with the potential
to provide many more jobs and income in the future, may not get the chance to develop and
grow if they are quickly eliminated by competition from lower-cost economies overseas. By
proving those with protection from overseas competition may allow them to take advantage of
economies of scale and become internationally competitive. 
In addition, protectionism might want to correct a trade imbalance which is a country that
spends more on imports than it earns from the sales of its exports will have a significant trade
imbalance. Cutting spending on imports using tariffs and non- tariffs barriers can help to reduce
a trade deficit. 
However, on purely economic grounds, it is difficult to support most of the arguments for the
restriction of international trade. Owing to protection, the extent of international specialization
is reduced and so is the potential level of world output. The erection of trade barriers invites
retaliation and increases the probability of a general reduction in world trade. Industries
operating behind tariff walls are protected from foreign competition and this could lead to a
lower level of efficiency. In fact, benefits from protectionism are mostly short term. In the long
run, free trade brings more benefits to a country.
Several economic conferences had been held with a view to reducing tariffs or eliminate other
trade barriers, for instance, World Trade Organizations (WTO). JANETTE
In our conclusion, both forms, either free trade or protectionism, do have their advantages just
as well as disadvantages. Protectionism is to help young industries, which are still developing,
to grow without being threatened by stronger companies from other countries, but
protectionism policies will need to produce its own goods and services are restricts or made
expensive and this leads to, inefficient as countries have comparative advantages and
weaknesses. Free trade allows a country to focus on its competitive advantages and imports
where it’s weak. However, free trade has a huge problem in working conditions, job loss,
economic damage to some countries and environmental damage globally.