4.1.6 Restrictions on free trade

• What is free trade defined as?

  Removal of trade barriers
• Free trade increases efficiency because countries can specialize in producing goods they are most efficient
• Free trade leads to lower prices for consumers due to reduced costs.
• How does free trade affect product variety for consumers?

  Increases product variety
• Free trade stimulates economic growth by increasing exports and imports
• What is a tariff in international trade?

  Tax on imported goods
• Quotas protect domestic jobs by limiting foreign competition.
• What does a voluntary export restraint (VER) involve?

  Exporting country limits exports
• Subsidies help domestic industries compete by lowering their production costs
• Embargoes are used for political leverage and can disrupt trade relationships.
• How do tariffs affect the price of imported goods?

  Increase the price
• Match the trade restriction with its definition:

  Tariffs ↔️ Taxes on imported goods

  Quotas ↔️ Limits on import quantity

  Embargoes ↔️ Prohibitions on trade
• Tariffs increase the cost of imports, leading to higher prices for consumers
• Consumer welfare is reduced by tariffs due to higher prices and limited product variety.
• Why do higher prices from tariffs negatively impact consumer welfare?

  Reduced product variety
• Tariffs are taxes imposed on imported goods
• Higher prices and limited product variety increase consumer welfare.

  False
• What is a quota in international trade?

  Restriction on import quantity
• With a quota, prices are higher
• Quotas reduce the number of domestic jobs.

  False
• Match the non-tariff barrier with its definition:

  Quotas ↔️ Limits on import quantities

  Embargoes ↔️ Complete trade ban

  Subsidies ↔️ Financial support to producers

  Regulatory Barriers ↔️ Stringent health standards
• What is the primary goal of free trade?

  Remove trade barriers
• Lower prices under free trade increase consumer surplus
• Free trade can lead to economic growth by increasing exports and imports.
• Match the trade restriction with its key benefit:

  Tariffs ↔️ Raises government revenue

  Quotas ↔️ Reduces foreign competition

  Subsidies ↔️ Lowers production costs

  Embargoes ↔️ Political leverage
• Why do tariffs increase consumer prices?

  They raise import costs
• Tariffs improve consumer welfare by increasing product variety.

  False
• Quotas limit the quantity of goods that can be imported within a set period
• Quotas can help preserve domestic jobs by limiting foreign competition.
• What is the main goal of protecting infant industries with trade restrictions?

  Allow new industries to grow
• Tariff revenue is calculated by multiplying the tariff rate by the import volume
• Match the argument against trade restrictions with its explanation:

  Higher Prices ↔️ Tariffs increase import costs

  Reduced Choice ↔️ Limits product variety

  Inefficient Resource Allocation ↔️ Protection distorts markets

  Retaliatory Measures ↔️ Provoke tariffs from other countries
• How do trade restrictions affect global trade volumes?

  They reduce trade volumes
• Reduced competition due to trade restrictions can hinder innovation.
• Trade restrictions include tariffs, quotas, and non-tariff barriers
• How do tariffs and quotas affect consumer prices?

  Increase them
• Trade restrictions increase trade volumes.

  False
• What is the relationship between competition and innovation according to the study material?

  Directly proportional
• Match the economic effect with its explanation:

  Higher Prices ↔️ Increased cost of imported goods

  Reduced Trade Volumes ↔️ Limits to import and export quantities

  Decreased Competition ↔️ Reduction of foreign market participation

  Reduced Innovation ↔️ Slows innovation due to lack of pressure
• Reduced innovation is a consequence of decreased competition caused by trade restrictions.