Median Voter and Collective Action Theory

Question 1

Median Voter Theorem

Answer 1

(a) predicts that democratic political parties change their policies to court the voter in the middle of the ideological spectrum –> policy outcome that benefits large number of people but inflicts large losses on a few people
(b) HOWEVER, trade policy doesn’t follow this prediction

Question 2

Collective Action Theory

Answer 2

(a) individual consumers have no incentive to lobby for free trade because their benefits are not large compared to the cost
(b) individuals in groups who suffer large losses from free trade have strong incentive to lobby for protection

Question 3

Combination Model

Answer 3

(a) politicians need both popular policies (Median Voter Theorem) and funds (special interest groups) –> trade barriers (especially in sensitive industries such as steel)
(b) HOWEVER, better to adjust to demands of changing economy instead of postponing the inevitable

Question 4

Types of Trade Barriers (1 of 5)

Answer 4

Tariffs: tax on imports

(a) specific: fixed amount per import
(b) ad valorem: % of value of import

Question 5

Types of Trade Barriers (2 of 5)

Answer 5

Quotas: direct restriction on quantity of imports

a) different from tariffs (no government revenue

Question 6

Types of Trade Barriers (3 of 5)

Answer 6

Voluntary Export Restrictions

(a) countries voluntarily limit exports
(b) ex: China and rare earth materials

Question 7

Types of Trade Barriers (4 of 5)

Answer 7

Non-tariff Barriers

(a) ex: standards, licensing, inspections

Question 8

Types of Trade Barriers (5 of 5)

Answer 8

Export Subsidies