Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

EC336 - TRADE > Tariffs > Flashcards

Tariffs Flashcards

1
Q

Specific / unit tariff =

A

Fixed charge per unit of imported goods.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Ad valorem tariff =

A

Fraction of the value of the imported good.s

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What’s the oldest form of trade policy?

A

Tariffs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Info on when corn laws introduced and why?

A

1815 until 1846

To protect UK agriculture against grain imports from Denmark and Prussia

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

After when did % of government revenue coming from tariffs substantially decrease in US?

A

Civil war 1861-1865

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What type of analysis do we do for a tariff?

A

Partial equilibrium - we look at effects on a single market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

If in Autarky P* wheat < P wheat, who exports and who imports once we open up?

A

Foreign exports

Home imports

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

2 simplifying assumptions for tariff analysis

A
  1. No transport costs

2. One world currency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How do we find the Autarky price of wheat?

A

Where D=S in domestic market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How do we draw MD curve? What does it look like?

A

MD curve = 0 at Autarky price.

Slopes down - lower p = higher demand, lower supply = more imports

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How do we draw XS curve and what does it look like?

A

XS curve = 0 at foreign Autarky price.

Slopes up - Higher price = higher supply, lower demand = more exports

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

World equilibrium free trade at

A

MD = XS
import demand = import supply
Implies world demand = world supply

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How does Pw relate to 2 Autarky prices?

A

Pw is between 2 Autarky prices.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

After a tariff, when are foreign exporters willing to export?

A

Since trade increase transport costs, only willing to export if compensated enough by price differential.
Price differential > tariff
Or price UK - tariff > price Denmark

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

At the original world price, how do demand and supply react in home and foreign?

A

The tariff makes some shippers unwilling to export
So excess demand at home
Excess supply in foreign

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How does a tariff cause prices in home and foreign to change relative to the free trade price?

A

Excess demand at home —> price rises PT > Pw

Excess supply at home —> price falls PT* < Pw

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What’s the tariff equilibrium?

A

Prices adjust until: PT - PT* = t
Arbitrage argument.
At this price differential, quantity of imports = quantity of exports.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How does a tariff affect world trade?

A

It reduces it since MD and XS both contract.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How much does PT rise by after the tariff in the economy is large?

A

Rise in PT < tariff
Pass through / incidence < 100%
Shared burden between home consumers & foreign producers.

20
Q

Why is the foreign incidence typically low?

A

Because foreign = ROW

21
Q

When is the tariff incidence 100% for home? How does this affect prices?

A

If the importing country is sufficiently small, it has no power to influence foreign’s price since its demand is a small part of world demand.
Hence: PT* = Pw, PT = Pw + t

22
Q

Effective rate of protection definition

A

How much protection a tariff provides to domestic producers

23
Q

Effective rate of protection formula

A

VT - Vw / Vw

The change in value added in production from free trade to tariff equilibrium.

24
Q

Why is the effective rate of protection usually not equal to the tariff rate?

A

Because the tariff affects many sectors other than the protected sector.

25
Q

Who provided evidence on effective rate vs tariff rate and what did they find?

A

Deardoff and Stern (1996)
Aggregated all traded goods in US and Japan into 22 sectors
Found effective rate > tariff rate in all cases.

26
Q

Consumer surplus =

A

The difference between what a consumer actually pays and what they’re willing to pay

27
Q

Consumer surplus on the demand curve is

A

CS = area under demand curve above price

28
Q

Willingness to pay of consumers is given by….

A

The demand curv

29
Q

Producer surplus =

A

Differences between price producers actually receive and price they’re willing to sell at.

30
Q

Producer surplus on supply curve

A

PS = area above supply curve and below price.

31
Q

Willingness to sell of producers shown by…

A

Supply curve

32
Q

Change in consumer surplus

A

Minus abcd

33
Q

Change in domestic producers surplus

A

Plus a

34
Q

Change in government revenue

A

c + e

35
Q

Government tariff revenue formula

A

Quantity imports x tariff

36
Q

Tariff rate is given by…

A

t = PT - PT*

37
Q

Why does a tariff create efficiency losses? 2 other names for them.

A

Producer inefficiency form producing too much
Consumer inefficiency from consuming too little
DWL / Harberger triangles

38
Q

Intuition behind why there is an efficiency loss.

A

Because home produces goods that could be produced more cheaply abroad.

39
Q

Why is there a TOT gain from a tariff?

A

Tariff reduced foreign export price hence lower domestic import price.
TOT = Px/Pm so Pm falls TOT rises for home.
Tariff raises price consumers end up paying, but price imported at falls.

40
Q

Out of the governments gain, what are the two components of it?

A
  1. TOT gain

2. Capture some CS - so government gain at expense of domestic consumers.

41
Q

Net effect of tariff for home=

A

b + d - e
I.e. efficiency loss - TOT gain
The effect is AMBIGUOUS
If b+d-e>0 —> net cost

42
Q

Net effect of tariff for home is a SMALL country

A

No TOT gain since Pm unchanged (PT* = Pw still)

So net effect = b + d > 0 —> net cost is unambiguous

43
Q

2 caveats to tariff welfare analysis

A
  1. We treat every £ lost and gained as equally valuable - but tariff could hit poor harder, or government could waste the money so even if e > b + d, social welfare effect could be negative.
  2. Selfish perspective: ignore effect on foreign welfare
44
Q

Net effect of a tariff on foreign

A

Double whammy - efficiency loss + TOT loss so negative effect.

45
Q

Net effect of tariff on global welfare

A

ALWAYS NEGATIVE

EC336 - TRADE (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions