Trade restrictions are sometimes known as protection because such restrictions are often justified as needed to protect industries, workers, or nations from various effects of foreign competitors. There are three primary forms of trade restriction (or protection) that we will consider:
Tariffs are taxes charged on imported goods.

Quotas are restrictions on the quantity of a good that may be imported.

Subsidies are payments made to domestic producers to encourage exports.

    Tariffs, quotas and even subsidies all affect terms of trade and thus limit or prevent the gains from trade that could arise in their absence. We will briefly consider some of the arguments for and against protection, and then we will examine graphically the effect of these restrictions on possible gains from trade. Typically, these restrictions are examined graphically in a demand and supply context. We break from that tradition here and focus instead on graphical illustrations of the effects these restrictions have on possible gains from trade, using the same graphical approach we have used throughout this chapter.

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