Trade restrictions Cambridge IGCSE Business Studies (9–1) revision
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In plain words
Governments do not always want free trade. To shield their own firms from foreign competition they tax imports, limit them or ban them. This is called protection.
It saves some jobs at home, and it costs shoppers more.
5 things to know
- A tariff is a tax on imports. It raises their price, so fewer are bought, and it raises revenue for the government.
- An import quota is a limit on the quantity of a good that can be imported.
- A subsidy to home producers lowers their costs, so they can compete with imports. An embargo is a ban on trade in certain goods, or with a certain country.
- Reasons for protection: to let new (infant) industries grow, to slow the decline of old industries and save jobs, to protect strategic industries such as food and energy, to stop dumping, to reduce a current account deficit, to raise revenue, and to keep out harmful or unsafe goods.
- Consequences: higher prices and less choice for consumers, home firms that may stay inefficient, and the risk that other countries retaliate with barriers of their own.
Worked example
A shirt is imported for $20. The government puts a 25% tariff on imported shirts. What is the new price?
- Tariff = 25% of 20 = 0.25 × 20 = $5.
- New price = 20 + 5.
- The imported shirt now costs $25.
Tips and tricks
- Dumping means selling goods abroad at a price below the cost of making them, to drive rival firms out of business.
- A tariff raises money for the government. A quota does not. That is the quick way to tell their effects apart.
It lands in your notebook with its questions as flashcards.
Trade restrictions: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
A tariff is
It makes imported goods more expensive.
A government limits imports of steel to 2 million tonnes a year. This is
A quota is a limit on quantity.
A good is imported for $50 and a 10% tariff is added. What is its new price?
10% of 50 is 5, and 50 + 5 = $55.
Selling goods in another country at a price below the cost of producing them is
It can destroy the home industry of the country that receives the goods.
What is a risk of imposing tariffs on another country's goods?
A trade war reduces exports for both countries.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
Trade restrictions
Cambridge IGCSE Business Studies (9–1) 0986 · 8 marks · papermunch.org
Name ______________________________ Date ______________
Define a tariff.[2]
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A tax placed on imported goods.
Explain why a government might protect an infant industry.[3]
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A new industry is small and has high average costs, so it cannot compete with established foreign firms. Protection gives it time to grow and gain economies of scale.
Explain two disadvantages of trade restrictions for consumers.[3]
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Imports become more expensive, so consumers pay higher prices. Fewer foreign goods are on sale, so they have less choice.
Answers: Trade restrictions
- 1. A tax placed on imported goods.
- 2. A new industry is small and has high average costs, so it cannot compete with established foreign firms. Protection gives it time to grow and gain economies of scale.
- 3. Imports become more expensive, so consumers pay higher prices. Fewer foreign goods are on sale, so they have less choice.