Economics Summary

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Protection A government caution that produces an artificial advantage for domestic produce over their foreign competitors. Reason for Protection *Protecting Infant Industries- protected in the initial stages when cost are higher than the established international firms. Temporary support only. This encourages innovation and allows industry time to achieve economies of scale. *Prevention of Dumping- foreign firms sell their goods in other country's market at below the price they charge in their home country's market. Local firms cannot compete long term at these prices, rising unemployment *Protection of Domestic Employment- Little support for this argument Employment in these industries is at the expense of more efficient export in industry retaliation effect Distort the allocation of resources to less efficient production, creating less economic growth & employment *Defence- a country may retain own defence industry to quarantine supply, despite the possibility of higher production cost. Types of Protection & Effects of Protection on domestic and global economies *Tariffs- taxes on imported goods imposed for the purpose of protection of Australian industry. Effect: Domestic producers supply a greater quantity of the good. Therefore, the tariff stimulates domestic production and employment. *Quotas- quantitative restriction on certain categories of imported goods. Effect: Domestic producers supply a greater quantity of the good. Therefore, the tariff stimulates domestic production and employment in the protected industry. *Subsidies- cash payments from government to local producers to encourage and influence the allocation of resources. Effect: Domestic producers supply a greater quantity of the good. Therefore, the tariff stimulates domestic production and employment in the protected industry. Effect: More resources

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