Summary: Protectionism Pre-Test

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• 1 Protectionism Pre-test

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• When has the European Common Agricultural Policy operated since?

  • European Common Agricultural Policy has operated since 1957.

• What is the result of misallocation of resources according to the text?

  • Allocatively inefficient
  • Leads to net welfare losses

• What happens to some consumers due to misallocation of resources?

  • Some consumers don’t get to consume.

• What is 'Tit for Tat' Retaliation?

  • If we impose a trade barrier (tariff or otherwise), countries that receive our M will too.
  • Example: G Bush steel tariffs 2002.

• What is the current situation with the WTO regarding complaints and retaliation?

  • Now we are in the WTO, complaints are up (expected) but the rule on it legitimate retaliation can take place...so it shouldn’t escalate.

• What is a "Corruption Magnate"?

  • Direct transfer of resources from Consumers to Firms.
  • Large incentive to bribe lawmakers.
  • Erodes Govt’s integrity.

• What happens when "X – inefficiencies develop"?

  • Due to less competition, they become complacent and inefficiencies creep in.
  • Consumers paying higher prices.

• What is the effect of higher M cost?

  • Reduces standards of living.

• How does reduced X competitiveness affect exporters?

  • If M of components/resources cost more, costs will be higher for exporters.
  • Inefficient producers demanding FoP increases cost for efficient ones.
  • Example: China textile industry lobbied for reduced cotton quota.

• What are Voluntary Export Restraints (VERs) often used for?

  • Often used to pre-empt a trade dispute.
  • Far more preferable to exporters as they get a premium.