4.2 -4.3 trade protectionism Flashcards
Tariffs
taxes on imported goods
Purpose of tariffs
- raise revenue for government
- protect domestic industry from foreign competition
- restrict production and consumption on negative externalities
Draw a tariff
both producer and consumer receive Pw+tariff
include CS, PS, Govt revenue and changes in quantity imported
Evaluate tariff
Winners:
Domestic producer, produce at higher quantity and receive higher price. PS gain
Government revenue
Losers:
Domestic consumers, higher price and less quantity demanded. CS loss
Regressive tax, income distribution
Foreign producers, lose export revenue due to fall in quantity of exports
Both welfare loss, one is inefficient domestic producer. another is loss in domestic consumer
calculation of tariff
when calculating import expenditure (p x imports), to calculate import expenditure after the tariff, use Pw not Pw+t cuz gov collects Pw+t
foreign producers
Pw x fall in quantity of imports
Quota
legal limit to quantity of a good that can be imported over a particular time period
Draw a quota
both domestic producer and consumer receive Pq
include CS, PS, DWL, imports changes
evaluate quota
Winners:
domestic producers, receive higher price, produce more quantity
foreign producers who are license holders and meet her quota revenue
Neutral:
government
Losers:
Domestic consumers
more DWL
Production subsidy
payments per unit of output paid by government to domestic firms that compete with imports
hidden trade barrier
Draw production subsidy
only domestic producer and receive Pw+s (consumers still consume ant Pw)
include CS, PS, DWL, imports changes
evaluate production subsidy
Winners
Domestic producers, high price, high quantity
Neutral consumers, still receive same price and quantity (Pw+s line does not go over intersection with Sdom)
Losers:
government
tax payers
foreign countries, fall in export revenue
little dwl
export subsidy
payment by government per unit of the subsidised good that is exported (increase exports)
hidden trade barrier
draw export subsidy
both domestic producer and consumer receive Pw+sub (not foreigners)
include CS, PS, DWL, exports changes
evaluate export subsidy
Winners:
domestic producers
Losers:
domestic consumer
tax payers
government
other exporting countries (lose a share of their global market through increase in subsidised exports
Administrative barriers
bureaucratic barriers preventing imported goods or services
product standards (health, environmental, quality)
buy national policies
voluntary export restraint agreement
