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WAEconomicsQuick questions
Unit 3: Australia and the Global Economy
Quick questions on Free trade and protection: WACE Year 12 Economics Unit 3
2short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What are subsidies?Show answer
A production subsidy shifts the domestic supply curve down (or right) by the subsidy. Domestic producers supply more at the world price, so imports fall. Consumers keep paying the low world price (no price rise), but taxpayers fund the subsidy, and resources are still drawn into a less efficient industry, creating a smaller deadweight loss than a tariff.
What are quotas?Show answer
A quota caps imports at a set quantity, raising the domestic price like a tariff. The key difference is that the price markup (the "quota rent") goes to importers or licence holders rather than to government as revenue. Quotas are less transparent than tariffs and can be more distorting.
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