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Arguments for and Against Trade Control/Protection · Paper 2 — Free Economics SL Practice Questions
1MasteryLAQProtectionist vs free trade policies10 marksPaper 2~15 min
Country X is a developing nation with a fledgling steel industry. Currently, it imports of its steel from Country Y, a developed nation with a highly efficient steel sector. The government of Country X is considering imposing a tariff on imported steel to protect its domestic industry. Domestic steel producers argue this will allow them to grow and become competitive. Domestic construction companies argue the tariff will raise their costs and harm the economy.
(a)
Explain why Country X currently imports steel from Country Y, using the concept of comparative advantage. [2 marks]
(b)
Using a fully labelled tariff , explain the microeconomic effects of the proposed tariff on the steel market in Country X. [4 marks]
(c)
Evaluate the extent to which the infant industry argument justifies the proposed tariff, considering the interests of both domestic steel producers and domestic construction companies. [4 marks]
Solutions
2MasteryLAQProtectionist vs free trade policies10 marksPaper 2~15 min
In 2023, the government of Country Z, a high-income nation, removed all tariffs on imported textiles from developing countries. The policy aimed to lower consumer prices and promote free trade. Domestic textile workers' unions protested, claiming the policy would destroy the local industry. A local economist argued the policy was theoretically sound but would cause short-term adjustment costs.
(a)
Define comparative advantage and explain how it provides a theoretical justification for free trade. [2 marks]
(b)
Using a correctly labelled of the textile market in Country Z, explain the effects of removing the tariff on:
- domestic consumers
- domestic producers
- government revenue [4 marks]
(c)
Evaluate the case against removing the tariff, using one argument from the perspective of domestic workers and one from the perspective of national economic security. In your answer, include an overall judgement on whether these arguments are sufficient to justify maintaining the tariff. [4 marks]
Solutions
3MasteryLAQProtectionist vs free trade policies10 marksPaper 2~15 min
Country X is a developing nation in Southeast Asia with a growing manufacturing sector. Its government is considering two policy options for the electronics industry:
- Option A: Remove all tariffs and quotas on imported electronic components, allowing free trade.
- Option B: Maintain a tariff on imported electronic components to protect domestic producers.
Currently, domestic firms supply only a fraction of total demand for electronic components. Local manufacturers argue they need protection to grow, while consumer electronics assemblers claim tariffs raise their input costs and reduce competitiveness in export markets for finished goods.
(a)
Using a tariff , explain how removing the tariff (Option A) affects domestic consumer surplus and overall welfare in Country X's electronic components market. [3 marks]
(b)
Evaluate two arguments in favour of maintaining the tariff (Option B). For each argument, use economic theory and a real-world example, and assess the limitations of that argument. [7 marks]
Solutions
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