L4: Trade Policies

Question 1

instruments of protectionism

Answer 1

tariffs
quotas
VER (voluntary export restraint)
subsidies

Question 2

what happens when a tariff is implemented?

Answer 2

supply goes up, demand goes down
consumer surplus is now reduced 
producer surplus has now gained
tariff revenue gained for government
deadweight losses

Question 3

arguments of protectionism

Answer 3

1. small gains
2. optimal tariff is a true argument in favour of protectionism but only if the other big country does not retaliate
3. market failures - production results in a social benefit (training, R&D, infrastructure…)
   a higher production has a positive outcome that can compensate the loss due to protection
4. strategic trade policies
   a trade policy that favors domestic firms can help extract rents at the expense of foreign competitors