week 6

Question 1

what is the distinction between a small and large country

Answer 1

relates to whether a country is a ‘price-taker’ in world goods market

Question 2

draw the protection by an important tariff in a small country

Answer 2

look at notes

Question 3

in terms of welfare, what happens when a small country imposes a tariff

Answer 3

there should be a net welfare gain of of imposing tariffs

Question 4

draw a daigram when ‘home@ imposes a import tariff

Answer 4

look at notes

label all the different parts

Question 5

in terms of welfare, what happens when home imposes a tariff

small country

Answer 5

consumer surplus will decrease
producer surplus will increase
government revenue will increase

so overall social welfare will decrease

Question 6

what is ‘production loss’?

Answer 6

the additional resource cost of increasing domestic production compared to importing

home import: production loss is represented by a traingle –> domestic production increases

Question 7

what is ‘consumption loss’?

Answer 7

fall in consumer surplus that is due to a fall in quantity consumed, rahter than a higher price on continuing consumption

Question 8

why does consumer surplus fall: in terms of consumption loss?

Answer 8

consumers exit the market and consumers stay in the market pays more as a result

the consumption loss of a tariff measures the former effect

Question 9

long run and knock on effects of an import tariff:

what is the partial equ justified by

Answer 9

asumming the industry concerned is small within the country overall economy

• industry has a small effect on the country factor markers, thus takes factor prices

Question 10

long run and knock on effects of an import tariff: what are the speculative long-run effects

Answer 10

tariffs will leads to an increase in the price level

later leads to supernormal profits= increase in produscer surplus

entry into the industry in the LR

Question 11

long run and knock on effects of an import tariff: what are the 2 scenarios for increase in profit

Answer 11

1.

• entering entrepeneurs hire K away from wider economy
• S curve shifts out

2. Scenario 2
   - A fixed stock of K is specific to the industry
   - entering entrepreneurs compete for industry specific K –> Pk bid up supply curve
   - owners gain PS

Question 12

long run and knock on effects of an import tariff: Stopler samuelson effects on factor prices –>

Answer 12

tariff leads to an increase in the general price

factor used intensively in the co will gain (real terms) and the other factor will loses

Question 13

what are the three reasons for protection

Answer 13

relianance of governments on tariff revenue

lobbying by

if a country is large in world markets

Question 14

why is gaining revenue a good reason for government to impose tariffs

Answer 14

they are easy to collect relative to other forms of taxation

data show that in LDC governemnts are relucatna tot change form of taxation despite welfare cost of tariffs

Question 15

why is lobbying by a good reason for a government to impose tariffs

Answer 15

tariffs persist because of the benefits they create are concentrated whilst the cost are dispersed

in tterms of factors used intensively in import comepeting industry

Question 16

why is a country being large is a good reason for country to impose tariffs

Answer 16

possibility of a national welfare gain from protectionism (in absence of retalisationO

Question 17

give an example of lobbying by firms to push for tariffs

Answer 17

tariff imposed

• producers surplus increased by 5 mn
• CS decrease by 10 mn

50 firms= gain will be 100k per firm
10 mn consumers = loss of 1 pound

so gain per firm> loss per consumer

firmsd have a greater incentive to lobby polititions over trade policy