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Free trade

refers to a situation where a government does not attempt to restrict what its citizens can buy from another country or what they can sell to another country.


a tax leveled on imports that effectively raises the cost of imported products relative to domestic products.

Why do governments impose tariffs

leveled as a fixed charge for each unit of a good imported.

Ad valorem tariffs

leveled as a proportion of the value of the imported good.

Why do governments impose tariffs

increase government revenues, provide protection to domestic procedures against foreign competitors by increasing the cost of imported foreign goods, and to force consumers to pay more for certain imports.


a government payment to a domestic producer.

import quota

a direct restriction on the quantity of a good that can be imported into a country.

Tariff rate quota

lower tariff rates applied to imports within the quota than those over the quota.

Voluntary export restraint (VER)

a quota on trade imposed from the exporting country's side, instead of the importer's, usually imposed at the request of the importing country's government.

Quota rent

extra profit producers makes when supply is artificiality limited by an import quota.

Local content requirement

a requirement that some specific fraction of a good be produced domestically.

Administrative trade policies

administrative policies, typically adopted by government bureaucracies, that can be used to restrict imports or boost exports.


selling goods in a foreign market below their cost of production.

Antidumping policies

designed to punish foreign firms that engage in dumping.

Why do governments intervene in trade

political arguments and economic arguments.

Political arguments

concerned with protecting the interests of certain groups within a nation, protecting jobs and industries, national security, retaliation, protecting consumers, and furthering foreign policy objectives.

Economic arguments

concerned with protecting the interests of certain groups within a nation, often at the expense of other groups, the infant industry argument and strategic trade policy.

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