Tariff policy

Question 1

What is Trade Policy?

Answer 1

Economic policy regarding international trade

Question 2

What are the three reasons to impose tariff?

Answer 2

i) generate government revenue
ii) to protect domestic industries
iii) to reduce trade deficits

Question 3

What is the effect of tariff imposition on income distribution in developing countries?

Answer 3

Stolper-Samuelson theorem in the Heckscher-Ohlin trade theory
=> In LDC, trade protection benefits capitalists and harms laborers
Trade protection is harmful to income distribution

Question 4

What is the Effective Rate of Protection?

Answer 4

The degree of protection of the final product considering the tariff rates of the intermediate products as well as the final good tariff rate

Question 5

What are the two properties of the ERP?

Answer 5

i) As the tariff rates of the intermediate products rise, ERP falls
ii) As the tariff rates of the final products rise, ERP rise

Question 6

What are cascading tariffs?

Answer 6

Raw materials typically have lower tariffs than finished products