Question 1
Which measure would not be part of a government subsidy to protect domestic producers from competition?
Answer: A.
A subsidy is government support that lowers a domestic producer's costs or hands it money. Interest-free loans do that by removing the cost of borrowing, cutting profits tax leaves the firm with more of what it earns, and transfer payments are money paid over directly, all three are subsidies, in cash or in kind. An import quota is a different instrument altogether: it limits the QUANTITY of foreign goods allowed into the country. It certainly protects domestic producers, and that is what makes it tempting, but it protects them by restricting their rivals rather than by giving them anything. The government spends nothing and the domestic firm receives nothing, so it is not part of a subsidy, A.
Question 2
In which economic context is the term ‘protectionism’ usually applied?
Answer: C.
Protectionism has a specific meaning in trade theory: measures such as tariffs, quotas, subsidies and standards used to shield domestic producers from competition by imports. The word protection appears in all four statements, which is what makes the question awkward, but only one of them concerns the boundary between home and foreign producers. Shielding consumers from excessive prices is the business of competition policy and price regulation, aimed at monopoly power rather than at imports. Shielding employees from exploitation by multinationals belongs to employment law and labour standards. Defending the exchange rate against speculators is a matter for the central bank, using reserves, interest rates or capital controls, and it protects a price in the currency market rather than any industry.
Question 3
What would reduce an economy’s protection against the import of cars?
Answer: A.
Protection against imported cars is anything that makes foreign cars harder or dearer to sell in the domestic market, so reducing it means loosening one of those restraints. Raising the quota lifts the ceiling on how many imported cars may enter, which is a direct relaxation of the barrier. A higher tariff does the reverse by taxing each imported car more heavily, so foreign models carry a bigger price handicap. A larger subsidy to domestic car makers protects them just as effectively without touching the border, since it lets home producers undercut imports on price using public money rather than lower costs. A lower exchange rate is protection by another route again, because a weaker currency raises the domestic price of every imported car automatically, which is why currency depreciation is sometimes described as protection through the back door.
Question 4
Which statement about trade protection is correct?
Answer: D.
A quota limits the QUANTITY of imports allowed in; a tariff taxes each unit that enters. That difference decides who gets the money. With a tariff, the extra amount paid at the border goes to the government as revenue. With a quota, the goods that do get in sell at the higher domestic price, but the gain goes to whoever holds the import licence rather than to the state, so a quota raises little or no revenue. Quotas are therefore less effective than tariffs for raising revenue, which is D. A has the elasticity backwards: a tariff cuts demand MORE when demand is price elastic, not less. B is wrong because an embargo bans imports outright, so it works whatever the elasticity. C confuses instruments, export subsidies help domestic firms sell abroad, whereas dumping in the home market is countered by anti-dumping duties.
Question 5
What is a disadvantage when a quota replaces a tariff to reduce imports?
Answer: B.
A tariff is a tax, so it raises revenue for the government; a quota simply caps the quantity, and the higher price it creates goes to importers and domestic producers instead. That lost revenue is the disadvantage. Both instruments restrict imports similarly, so the difference lies in who captures the gain from the higher price.
What this practice covers
Real past-paper questions, the answer key from the mark scheme, and the explanation that goes with it. Each one is marked the moment you pick, the correct option is shown whether or not you found it, and the full explanation opens either way. No account needed to answer them.
These questions are drawn from past CIE 9708 papers and filtered to protectionism. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
What examiners see students get wrong here
These are the errors that cost marks on protectionism, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
- Saying all protection benefits the whole domestic economy.
- Treating government tariff revenue as a net welfare gain.
- Assuming quota rents always go to the government.
- Confusing an import quota with an export quota.
- Treating export subsidies as ordinary production subsidies.
- Saying export subsidies necessarily lower the domestic price.
- Calling every safety regulation protectionist.
- Defining dumping simply as any import sold cheaply.
Revise it first
If any of the above is unfamiliar, work through the notes before practising: Protectionism revision notes.