Page 106 - Understanding Economics for Class 10

 During the early stages of development, all developed countries have given protection to
domestic producers through a variety of means.
Around 1991, many important and big changes were done in policies in India.
 The government decided that Indian producers should start competing with producers
Goyal Brothers Prakashan
around the globe because competition would help in improving the performance of the
domestic producers (producers within the country) since they would have to improve their
quality to survive competition.
 Many powerful international organisations supported this decision. Thus, to a large extent,
barriers on foreign trade and foreign investment were removed.
 This meant that goods could be imported and exported easily and also foreign companies
could set up factories and offices here.
 Removing barriers or restrictions set by the government is known as liberalisation.
 Comparatively less restrictions were imposed by government which allowed businesses
to make decisions freely about what they wish to import or export. Government becomes
more liberal.

LET’S WORK THESE OUT (Page No. 64)
1. What do you understand by liberalisation of foreign trade?
Ans. Liberalisation of foreign trade means removing or reducing barriers or restrictions on trade.
This meant that goods could be imported and exported easily and also foreign companies
could set up factories and offices here.

2. Tax on imports is one type of trade barrier. The government could also place a limit on
the number of goods that can be imported. This is known as quotas. Can you explain,
using the example of Chinese toys, how quotas can be used as trade barriers? Do you
think this should be used? Discuss.
Ans. Quota is also a type of trade barrier. It limits the number of goods that a country can
import or export during a particular period.
If quota is imposed on Chinese toys, it will restrict the number of toys that can be imported.
Indians cannot import as many toys as they want. Limiting the entry of Chinese toys
helps the Indian toys maker as demand of their toys will still be there in the market.

It should be used as a trade barrier because:
(i) It will protect the Indian manufacturers. They will try to match with the quality and
price that China is providing because Chinese toys are there in the market(quotas
have restricted the quantity, not banned it)
(ii) One more indirect benefit of imposing Quotas is, employment will not be affected much.
If manufacturers get the demand, they will employ more labour to make the toys.

WorLd trAde orGAnIsAtIon
 Influential international organisations advocates for unrestricted trade between nations and
promote the idea that all countries should adopt liberal policies.

 World Trade Organisation (WTO) is an organisation whose aim is to liberalise international
trade. It was started by some of the developed countries of the world. Currently, about
160 countries of the world are the members of the WTO.
 WTO establishes rules regarding international trade, and sees that these rules are obeyed.

E-92 Economics Class X