Question

Describe the welfare effects of trade restrictions, and explain why countries might still choose to engage trade restrictions anyway.

Answer 1

Trade restrictions are government-induced restrictions on international trade that generally decrease overall economic efficiency. Such restrictions affect the overall welfare of an economy, because these change the price consumers pay for a good and the quantity produced and consumed domestically. Trade restrictions, such as restriction, keep domestic prices above the world price thus causing harm to consumers as it increase the price of a good. This benefits domestic producers as they can sell goods at a higher price. The countries may still choose to engage trade restrictions anyway for the preservation of job, ensuring national security, increase national revenue and improve the consumption of local goods.