Tuesday, April 16

What Restriction Would the Government Impose in a Closed Economy

What restrictions would the government impose in a closed economy? Like tariffs and quotas. The government would have to forbid commerce with all other economies to establish a truly closed economy, even though these measures would block or slow down trade with a specific nation.

An economy that is “close” does not engage in international trade, which means it does not import or export products and services to or from other nations. In this scenario, all commodities and services are generate inside the confines of a particular economy.

What Restriction Would the Government Impose in a Close Economy

Despite the compelling theoretical justification for unrestricted global commerce, every government has put up at least some trade restrictions. Trade restrictions are often implement to shield domestic businesses and workers from competition from foreign companies. 

Restricting the importation of products and services made in other nations is a protectionist policy. A new wave of protectionist feeling was brought on by the slowdown in the American economy in late 2007 and early 2008; this sentiment had a role in the 2008 presidential election in the United States.

Does the following outline describe What restriction the government would impose in a closed economy? 

  • Tariff
  • Quotas
  • Antidumping Proceedings
  • Voluntary Export Restrictions
  • Other Barriers


A tariff is a fee on products and services that are imported. In the United States, the average duty on dutiable imports—i.e., imports subject to a tariff—is around 4%. Taxes on some imports are incredibly high. 

For instance, the United States charges a 35-cent per gallon duty (or nearly 40% of the value) on imported frozen orange juice. Imported tuna in cans is subject to a 35% tariff, and imported shoes are subject to a 2%–48% tariff. The cost of reselling imported items increases due to taxes.

What Restriction Would the Government Impose in a Closed Economy


A quota is a clear cap on the overall volume of an item or service. The course of a given period is imported. Quotas limit overall supply, which raises the domestic price of the commodity or service they are apply . In general, quotas state that the domestic market share of an exporting nation may not rise above a specific threshold.

In other instances, quotas are create so that the domestic price will increase to a specific amount. To keep the wholesale price of sugar in the United Stanmore than 22 cents per pound in the United States, above 22 cents per pound, Congress mandates, for instance, that the Department of Agriculture set quotas on imported sugar. The average price per pound in the world is less than 10 cents.

Difference Between Taffic and Quota



Raise costs for foreign producers

Decrease costs for foreign producers
Reduce Profit Increase Profit
Won’t encourage the entrance of new enterprises

Induce the entry of firms

Antidumping Proceedings

The anti-dumping process is one of the protectionist practices that are most frequently use nowadays. When a domestic business competes with a foreign rival, the domestic industry complains to the government that the foreign company is duping customers or charging an “unfair” price. 

A price below the production cost or the cost that a foreign company pays in its home country for a similar good was considere an unfair price under the rules outline in international discussions prior to the World Trade Organization’s ratification. 

These definitions may seem simple enough, but they have proven to be rather difficult. The process use to define “production cost” is completely arbitrary. The government organisation always specifies a “normal” profit when determining cost.

That typical profit can be ridiculously high. The United States Department of Justice, the American agency in charge of determining whether a foreign company has charged an unfair price, has occasionally defined normal profit rates as exceeding production costs by well over 50%, a rate that is significantly higher than that found in the majority of U.S. industries.

Voluntary Export Restrictions

A trade barrier known as voluntary export limits is when international businesses agree to restrict the volume of exports to a particular country. When the American government convinced foreign exporters of steel and vehicles to agree to limit their shipments to the country, they rose to prominence in the 1980s.

Although these restrictions are voluntary, they are often only accepted after intense pressure from the nation whose sectors they are intended to safeguard. For instance, the United States has successfully gotten many other countries to agree to export limits restricting the number of items they can ship, from steel to sweaters.

Similar to a standard quota, a voluntary export limitation operates similarly. It increases domestic product prices while decreasing the quota-affected article or service consumption. Because it boosts the price they are paid for their goods, it can also improve the profitability of the companies that accept the quota.

Other Obstacles: What Restriction Would the Government Impose in a Closed Economy

What restrictions would the government impose in a closed economy? Measures like safety standards, labelling regulations, environmental controls, and quality limits can all have the impact of limiting imports in addition to tariffs and quotas. Many limitations to safeguarding domestic market consumers have the entirely positive, desirable, unanticipated side effect of creating barriers. 

For instance, U.S. regulations on pesticide levels in food are frequently stricter than those of other nations. Although these regulations seem to inhibit the import of foreign goods, their main objective is to safeguard consumers from dangerous chemicals rather than limit trade. However, other nontariff barriers appear to have no purpose other than to prevent imports.

Strategic Trade Policy: What Restriction Would the Government Impose in a Closed Economy

What restrictions would the government impose in a closed economy? Government assistance could come in the form of protectionist trade policies designed to enable these businesses to grow in the face of foreign competition, support for R&D initiatives, initiatives to train workers in specialised skills required by the sector, or subsidies in the form of direct payments or preferential tax treatment. A strategic trade policy is any measure taken to encourage the growth of vital industries that may improve a nation’s domestic standard of living through trading with other countries.



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