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Unformatted text preview: Chapter 14 – The Impact of Trade Policies CHAPTER 14 THE IMPACT OF TRADE POLICIES Learning Objectives: ■ To understand how tariffs, quotas, and subsidies affect domestic markets. ■ To identify the winners, losers, and net country welfare effects of protection. ■ To clarify how the effects of protection differ between large and small countries. ■ To grasp how protection in one market can affect other markets in the economy. I. Outline Introduction- Gainers and Losers from Steel Tariffs Trade Restrictions in a Partial Equilibrium Setting: The Small-Country Case- The Impact of an Import Tariff- The Impact of an Import Quota and a Subsidy to Import-Competing Production- The Impact of Export Policies Trade Restrictions in a Partial Equilibrium Setting: The Large-Country Case- Framework for Analysis- The Impact of an Import Tariff- The Impact of an Import Quota- The Impact of an Export Tax- The Impact of an Export Subsidy Trade Restrictions in a General Equilibrium Setting- Protection in the Small-Country Case- Protection in the Large-Country Case Other Effects of Protection Summary Appendix A: The Impact of Protection in a Market with Nonhomogeneous Goods Appendix B: The Impact of Trade Policy in the Large-Country Setting Using Export Supply and Import Demand Curves- The Impact of an Import Tariff- The Impact of an Export Tax- The Impact of an Export Subsidy II. Special Chapter Features In The Real World: Welfare Costs of U.S. Import Quotas and VERs In The Real World: The U.S. Export Enhancement Program for Wheat In The Real World: Domestic Effects of the Sugar Quota System 14-1 Chapter 14 – The Impact of Trade Policies III. Purpose of Chapter The purpose of this chapter is to explain how trade restrictions affect a country so that the costs and benefits of this type of policy action can be more fully understood. IV. Teaching Tips A. The chapter begins with the example of the 2002 U.S. steel tariffs. This case provides a clear indication that there are both winners and losers from this type of trade barrier. In addition, the students will see that losers are not only the foreign exporters that have a tariff applied to their product but also actors within the domestic economy. B. The partial equilibrium analysis relies upon the concepts of producer and consumer surplus to demonstrate the costs and benefits of the various protection instruments. It is therefore important to review these two surplus concepts so that the students feel comfortable with them before they are used in the analysis. C. If you choose to use the large-country approach described on pages 289-300 and in Appendix B, it is worthwhile to stress that the demand for imports schedule is not the entire demand schedule for the product by domestic consumers. The demand for imports schedule is used when we discuss market effects, and the entire demand curve is primarily used when we discuss welfare effects – the two curves should not be confused. Analogous comments apply to the supply of exports schedule and the supply schedule of home producers. the supply of exports schedule and the supply schedule of home producers....
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- Spring '08