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0321316762_IM_08 - Chapter 8 The Instruments of Trade...

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Chapter 8 The Instruments of Trade Policy T Chapter Organization Basic Tariff Analysis Supply, Demand, and Trade in a Single Industry Effects of a Tariff Measuring the Amount of Protection Costs and Benefits of a Tariff Consumer and Producer Surplus Measuring the Costs and Benefits Other Instruments of Trade Policy Export Subsidies: Theory Case Study: Europe’s Common Agricultural Policy Import Quotas: Theory Case Study: An Import Quota in Practice: U.S. Sugar Voluntary Export Restraints Case Study: A Voluntary Export Restraint in Practice: Japanese Autos Local Content Requirements Box: American Buses, Made in Hungary Other Trade Policy Instruments The Effects of Trade Policy: A Summary Summary Appendix I: Tariff Analysis in General Equilibrium A Tariff in a Small Country A Tariff in a Large Country Appendix II: Tariffs and Import Quotas in the Presence of Monopoly The Model with Free Trade The Model with a Tariff The Model with an Import Quota Comparing a Tariff with a Quota
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36 Krugman/Obstfeld • International Economics: Theory and Policy, Seventh Edition T Chapter Overview This chapter and the next three focus on international trade policy. Students will have heard various arguments for and against restrictive trade practices in the media. Some of these arguments are sound and some are clearly not grounded in fact. This chapter provides a framework for analyzing the economic effects of trade policies by describing the tools of trade policy and analyzing their effects on consumers and producers in domestic and foreign countries. Case studies discuss actual episodes of restrictive trade practices. An instructor might try to underscore the relevance of these issues by having students scan newspapers and magazines for other timely examples of protectionism at work. The analysis presented here takes a partial equilibrium view, focusing on demand and supply in one market, rather than the general equilibrium approach followed in previous chapters. Import demand and export supply curves are derived from domestic and foreign demand and supply curves. There are a number of trade policy instruments analyzed in this chapter using these tools. Some of the important instruments of trade policy include specific tariffs , defined as taxes levied as a fixed charge for each unit of a good imported; ad valorem tariffs , levied as a fraction of the value of the imported good; export subsidies , which are payments given to a firm or industry that ships a good abroad; import quotas , which are direct restrictions on the quantity of some good that may be imported; voluntary export restraints , which are quotas on trading that are imposed by the exporting country instead of the importing country; and, local content requirements which are regulations that require that some specified fraction of a good is produced domestically.
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