Econ Final Review

Econ Final Review - Econ Final Review • • • •...

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Econ Final Review Credit constraints can lead to under investment in both physical and human capital. Agricultural subsidies in the US and the EU do not reduce the incentive for LDCs to invest in manufacturing. Monopsony hiring practices may leave workers worse off if it is difficult for labor to relocate. Poor infrastructure may reduce farmers’ ability to get the best price for their crops. For a small open economy that imports a good x: An ad valorem tariff of y% on x worth $100 (at world prices) = a $y specific tariff A y% subsidy to domestic producers of x induces the same production distortion (but not the same consumption distortion) as a y% tariff on x Similarly, a y% consumption tax on x has the same consumption distortion (but not the same production distortion) as a y% tariff on x The Metzler Paradox is more likely to arise when world relative supply is inelastic, as a shift in the relative demand results in a greater change in the world price. As tau increases, world price decreases. The Metzler Paradox is not possible in small countries The Byrd Amendment gave tariff revenues from retaliatory tariffs to the firms filing the complaint. Thus US firms had a greater incentive to file a complaint. Unlike free trade agreements, customs unions eliminate the need for “rules of origin”. Customs Unions have the same external tariffs. Thus there is no incentive for firms outside the CU to ship to and from different locations, eliminating the need for rules of origin. The MFN principle of the GATT/WTO does not require that governments make reciprocal tariff concessions. According to US law, a foreign firm is guilty of dumping when its export price is less than its (foreign) local selling price Not concerned with marginal cost, which would be more appropriate All Customs Unions are also Free Trade Areas but all FTAs are not necessarily
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Econ Final Review - Econ Final Review • • • •...

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