B9 Flashcards
The instruments of trade policy
What are tariffs
Taxes levied at imports
What are specific tariffs?
a fixed charge for each unit of goods imported
What are ad valorem tariffs
Taxes that are levied as a fraction of the value of the imported good’
What are tariffs used for
To protedct domestic industry and for government revenue
Can tariffs be beneficial?
Yes, to protect infant industries they have been useful to many especially in europe
Are tariffs used often nowadays
No, non-tariff barriers are favored like import quotas (limit on quantity imported) and export restraints (foreign country limiting exports at domestic request)
How do you calculate world equalibrium price
home + forign demand = home + forign supply
What are the effects of tariffs on trade
it raises the price of imports and thus trade decreases, as they decrease world demand they usually also make things cheaper in the foreign exporter
Is the effect of a tariff in large countries on prices usually the same size as the tariff
No becouse part of it is reflected in a decline the exporters export prices, I guess it means that the exporter have fewer other costs associated with the trade and can thus trade with lower prices as there are lower marginal costs. This only applies to large countries that can effect world demand
Is the effect of tariffs in small countries on prices usually the same size as the tariff
Yes becouse small countries do not effect world demand
The rate of effective protection is always the size of the tariff in small countries
No, depending on, what it is placed on it can very much effect different industries to different degrees
what is the rate of effective protedction
a percentage rate of increased income for domestic firms as a result of tariffs
What is consumer surplus
The difference between the price consumers pay and are willing to pay
Who gains and looses from a tarrif
domestic producers gain as well as the government at the expense of consumer surplus. In agregate term the economy is worth off especially if the country is small and tarrifs do not imporove the terms of trade by lowering global prices through its reduced demand
Are there aditional risks associated with tariffs outside the loss in cosumer surplus
Yes, that the exporter will levy tarrifs of their own and start a trade war
Are export subsidies dumb
Yes, they lead to efficiency loss and reduces the terms of trade, the only thing they do is improve the consumer surplus in forign markets
Does import quotas always rais the price of the imported good
Yes, restricting supply will do that
Are quotas worse or better than tariffs
In quotas the government gains no revenue but rather quota rents are gained by the producer that can sell their goods at a markup, these producers may be foreign which would be a massive downgrade in terms of trade compared to teriffs
What is a VER
A valulentary export restraint by an exporting country, in economic terms they are exactly like a quota but forigners always get the quota rents
What are local content requirements
Requirenments for a specific fraction of final goods to be produced domestically, does not produce quota rents and so is not as risky for terms of trade
Name some trade policy instruments outside tariffs, quotas, VERs and local content requirements
export credit subsidies (subsidizing the loans of exporters), national procurement (government production) and red tape barriers (international passive aggressiveness)
The result of a tariff can be broken down in two parts, what are they called
An efficiency loss (how the equalibrium is distorted) and a terms of trade gain (how a tariff might bring down global prices wich for a small country is zero)
Do tariffs increase monopoly power
yes, weaker competition will do that
Do quotas restrict monopolistic power more than tariffs
No, becouse monopolies cannot increase their prices over the cost of export plus the tariff in the case of one but in the case of a quota they can set the price where they want as long as there is still demand.
