Managerial Economics and Strategy, 2/e

17.3 International Trade Policies

Although firms and consumers in one country want to trade with people in other countries, governments often prevent free trade between nations. A government may prevent trade so as to protect domestic suppliers from competition by foreign firms. For example, a government may ban trade or set a quota that limits the amount of a good that can be imported. Alternatively, a government may tax imports or exports to raise government revenue. Commonly, governments collect an import tariff (sometimes called a duty), which is a tax on only imported items.

Historically, governments have concentrated on restricting imports rather than limiting or encouraging exports. Consequently, we focus on the effects of a country’s ...