Chapter 9-Political Economy of Trade Policy

Chapter 9-Political Economy of Trade Policy - Chapter 9:...

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Chapter 9: The Political Economy of Trade Policy Lecture Notes March 18, 2008 The Cases for Free Trade: o 1) Most efficient allocation of resources o 2) Allows firms or industry to take advantage of economies of scale o 3) Competition and opportunities o 4) Easiest policy to implement (political argument) Cases Against Free Trade: o 1) For a large country, a tariff or quota lowers the price of imports in world markets and generates a terms of trade gain Optimum tariff rate (laffer curve?) Export subsidy: lowers the terms of trade for a large country Export tax raises the terms of trade for a large country o 2) Domestic Market Failures Underemployment Under-utilization of capital Marginal Social Benefit ??
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This note was uploaded on 05/01/2008 for the course ECON 243 taught by Professor Koopman during the Spring '08 term at Georgetown.

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