Types of Restrictions on Free Trade – Economics Revision – The Tutor Academy

Courses Info

Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes

Quotas are limits on the quantity of a product being imported. It restricts the physical amount of product which a country can buy

Q1 – domestic supply at price pw

Q2 – domestic demand at price pw

An import quota is put in place by the government government; this is shown at Q3

Before quota the difference between Q2 and Q1 was the number of imports coming into the country

After the quota there is a fall in the number of imports allowed into the country, Q1 to Q3 is the new level of imports allowed.

This leaves an excess demand of Q2 to Q3. As a result of this there is pressure applied to the price and so the market pushes up the price to Pw+Q

At the new price, new suppliers enter market as they are incentivised by the higher price This leads to increase in supply from Sd to Sd+Q

Domestic suppliers now supply up to Q4

This results in a contraction of demand.

Tariffs are taxes imposed on imported goods. The aim of tariffs is to increase the price of a product and discourage a country to import more

[diagram]

Firms are offered subsidies from the government to encourage them to lower their costs and become more competitive.

Subsidies reduce the price a firm pays for each unit and consumer also pay less as the products are subsidised by the government

Some other methods to reduce free trade include: the health and safety regulations imposed, labelling of products and environmental regulation

Producers – firms face less competition and can produce lower average costs
Consumers – restrictions such as Tariffs and Quotas raise the price of the imported products, hence consumers are left with less choice and variety
Government – the government is able to increase their tax revenue generate through import taxes and tariffs
Economy – lower output is caused because of less specialisation and a depletion of the country’s comparative advantage

Quick Fire Questions – Knowledge Check

1. Identify and explain four types of Restrictions on Free Trade (8 marks)

2. Using a diagram, explain the effect of a tariff and how it acts as a barrier for trade (4 marks)

3. Using a diagram, explain the effect of a subsidy and how it acts as a barrier for trade (4 marks)

4. Explain the impact of Protectionist Policies (8 marks)

Next Revision Topics

Level Economics Past Papers

Economics Tutor