Trade Policy Flashcards
What are 4 diffrent types of trade barriers?
trade taxes and subsidies
Import tariffs
Import subsidies
Export tax
Export subsidies
What are some non-tariff trade barriers?
Quatas, voluntary export restraints, Technical barriers to trade
Why trade taxes and subsidies?
Income pretection, support domestic industries, government revenue,
Explain a tariff analysis in a small country: price, quantity, equilibrium conditions
Initial sit:
- Food (F) is exported and Manufactures (M) is imported
- Small economy
- Ad volerem tax t, applied to each imported unit of M
- Trade tax revenues handed to conusmers in lump-sum
Graph: PPF with Food and Man. on either axis
Tariff domestic price ratio will be
P=(p(M) (1+t)) / p(f) = P*(1+t)
Equilibrium conditions: MRS=MRT=P > P*
Graph: P(A) shows production in autarky which has an even production of each good (pga no trade)
P* relative price will be more scewed towards Food since that is what they export
P will intersect with PPF so that there is a bit more production of M, since they impose tariff. But this line will then take the same slope as P* since they can’t affect world prices.
Conclusions: The GDP tariff < GDP free trade
U free trade > U tariff > U Autarky
- tariff reduces gains from from specialization, exchange, production for export
how do we calculate EXPORT tax on food, price ratio
What are the consequences of an export tax?
P=p(M) / p(f)(1-t)
Raises domemstic production for import competing sector and deacreses production of export good
What are te conclusions of a small country imposing an export subsidy?
An export subsidy increases trade with the rest of the world by expanding production and reducing consumption of the export good while reducing production and increasing consumption of import good.
How come Large coutnries can benefit from trade barriers?
Trade taxes cause domestic consumers and producers to behave as monopolists and monopsnists which affects the world price.
What does an offercurve show? If country A exports Manufactures and imports Food
Diffrent goods on either axis where two countries are exporters and importers of one good.
an offer curve shows the quantity of one type of product that an agent will export (“offer”) for each quantity of another type of product that it imports. …
At some point the curve tends to go backwards meaning that at high relative prices of export good M, the country will offer less M to world market
What is trading equilibrium in offercurves?
Where the offercurves intersect
What wil happen if Country B imposes a tariff on Manufactures (which it imports)?
Show with offercurves
B’s Offercurve will shift down of the importing country’s offercurve
This will decrease both import and export
But will also lead to new relative price P(t) which will be beneficial for Food
However we can’t say that welfare will be better for B
