Name and define three policy tools for enacting protectionism.

Name: Problem 21, Chapter 20: Principles of Microeconomics for AP® Courses
Uploaded: 2020-03-01T11:25:07-08:00
Duration: 8 min 26 s
Channel: Johanne Zhu
Description: Name and define three policy tools for enacting protectionism.

Name and define three policy tools for enacting...

Key Concepts

Subsidies

Subsidies involve financial assistance provided by the government to domestic producers, such as grants, tax breaks, or low-interest loans. These supports lower the cost of production for local industries, enabling them to sell their products at competitive prices, even in the presence of cheaper imported goods, thereby enhancing domestic competitiveness.

Tariffs

Tariffs are taxes imposed on imported goods, making them more expensive relative to domestic products. This economic instrument not only discourages the consumption of foreign products by raising their prices but also provides revenue for governments and protects local industries by leveling the competitive playing field.

Import Quotas

Import quotas establish a fixed limit on the quantity of a particular good that may be imported over a given period. By restricting the overall supply of foreign goods, quotas help protect domestic markets from being overwhelmed by external competition and allow local industries to compete more effectively by controlling market share.

Transcript

00:01 Hello everyone.

00:02 Today we are going to talk about protectionism and the three type of policy that a government or a country will use to enact protectionism.

00:12 So first, let's define what protectionism means.

00:16 Protectionism means that a country wants to protect its industry from the global competition.

00:23 And there are three major types of policy that a government will use to do the, to make the protection even happen.

00:34 So the first one is called import coda.

00:39 What does import coda mean? from the definition, we can see that an import coda is a type of trade restriction that sets a physical limit on quantity of the good.

00:51 We should be aware of it's a quantity of the good that can be imported into a country in a given period of time.

00:58 So let's draw a demand and supply, curve to better illustrate this.

01:04 So this is a price, this is a quantity, and this is a very typical supply curve.

01:13 Oh, sorry if this doesn't seem so straight.

01:19 Okay, so here we have the supply curve, and here this one is a demand curve.

01:29 Let's think of the question first.

01:30 In what kind of situation we will import good.

01:34 So this is an equilibrium price and this is an equilibrium quantity.

01:52 So let's say at this point the price is $20.

01:58 In what condition we will import from the country? we will only import in the condition that when the word price is lower than the equilibrium price.

02:12 So let's say this is a word price which is $10.

02:17 Okay so on the this condition that the world price is actually lower than the equilibrium price, which is the local price, the country will import from the other countries around the world.

02:32 So at here, we can see the quantity demand at this point, and the quantity of supply is only here.

02:41 So we will import this amount of good from other countries.

02:48 This is our import.

02:57 However, if a country want to apply an import code, what does it mean? you want to restrict this amount we have right now to a smaller amount.

03:07 So right now the graph will look like this.

03:14 This is the quantity demand and this is a quantity supply.

03:20 So right now, this is a new import.

03:23 Let's just write i for the abbreviation.

03:26 And this is a new import.

03:29 Okay.

03:30 So what is the influence after we apply the import quota is that the supply curve of the local country actually shift.

03:42 It shift from here to here...