Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

Check Your Progress: 
1. What is a tariff? 
2. Write notes on: 
i) 
Price effect of tariff on large country 
ii) 
Price effect of tariff on small country 
iii) 
Welfare effect of tariff on large country 
iv) 
Welfare effect of tariff on small country 
13.3 FREE TRADE VERSUS PROTECTIONISM 
 
One of the greatest international economic debates of all 
time has been the issue of free trade versus protectionism. 
Proponents of free trade believe in opening the global market, with 
as few restrictions on trade as possible. Proponents of 
protectionism believe in concentrating on the welfare of the 
domestic economy by limiting the open-market policy of the United 
States. However, what effects does this policy have for the 
international market and the other respective countries in this 
market? The question is not as complex as it may seem. Both sides 
have strong viewpoints representing their opinions, even the 
population of the United States is divided when it comes to taking a 
stand on the issue. After examining all factors on the two conflicting 
sides, it is clear that the United States should support 
protectionism. It ensures national welfare and provides several 
benefits for the American industrial economy. The economy needs 
to get itself out of the continual deficit hole that it has created for 
itself, and lean towards protectionist measures. 
Mercantil
ists‘ were the first to say something about the 
foreign trade. But they over simplified the situation and advocated a 
Restricted Foreign Trade. Mercantalism collapsed due to its many 
self-contradictory and untimely doctrines. Next came the 
physiocracy which is held to be the first School of Economic 

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Thought. Physiocrates supported the doctorine of 'Free Trade.' 
They thought that it was necessary to encourage the individuals to 
undertake trade activities across the national frontiers. Adam Smith 
strongly supported the vistas of Free Trade.