final2005answers - Part I. Multiple Choice 2; 3; 4; 2; 1;...

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Part I . Multiple Choice 2; 3; 4; 2; 1; 4; 1; 1; 2; 1 Part II . Please answer 5 of the following 6 questions. 1. ( 10 points ) a) (6 points ) What are the differences and similarities in the economic impacts of tariffs and quotas? Provide a brief explanation and a diagram. Result: In economy with no distortions and changes, effect of tariffs and quotas on prices and quantities are similar. Welfare effects are different because of re-distributional differences. Utility falls in both cases Tariff is collected by government at customs. Government uses tariff revenues to increase government expenditures => tariff revenues are re-distributed back to consumers. Quota is a permit to import some fixed amount of X into a country during a specified period. Binding quota creates artificial scarcity, that allows importers to sell X at prices Pq>P*. (Pq-P*) – quota rents are received by a small group of importers. If quota rents were redistributed back to consumers then welfare effects of quotas and tariffs would be identical. b) ( 4 points ) If domestic economy is growing and domestic demand for imports is increasing, which of the two policies is less distortionary? If H growth, exports of Y increases and import demand for X increases. Quota becomes more binding. Tariff preserves price distortion. P t = P*(1+t) => Tariff is less distortionary Xc-Xp P* Xc*-Xq* M P q Xp -Xc P Ex X Y P q P * U * Q * C * Q P * q U q C q A Xq Xc quota= M
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2 2. ( 10 points ) a) (5 points) Explain what the effective protection is. Provide relevant formula. Effective protection means that all tariffs (on final goods and on intermediate goods)
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This note was uploaded on 06/09/2010 for the course AP 3150 taught by Professor Allalileeva during the Winter '09 term at York University.

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final2005answers - Part I. Multiple Choice 2; 3; 4; 2; 1;...

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