Bra wars the quota strikes back

Bra Wars The Quota Strikes Back
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Unformatted text preview: Aplia Inez Assignments Page 1 of 1 Bra Wars: The Quota Strikes Back Contents Due Wednesday 02.27.08 08:00 PM I Grader 1. According to the Lex column, "unlike, say, tariffs, [quotas] producer profits rather than eXCiS( revenues in importing countries. For example, Japanese carmakers did no worse after agreeing to with America in [the] 19805." A. Reduce; tariffs B. Bolster; voluntary export restraints if} C. Bolster; quotas D. Reduce; voluntary export restraints At worst, the profits of Japanese carmakers remained unchanged after they agreed to voiuntary exporé restraints with America during the 19805. By agreeing to restrict the supply of cars to the American market, US. and Japanese firms kept prices above the competitive level. This lack of competition allowed American firms to reap higher profits at t expense of consumers. Meanwniie, Japanese exports declined, but Japanese carmakers received highe prices for each car they sold in the United States, leaving profits essentiaiiy unchanged from their free trade level. Aplia Inc.: Assignments Page 1 of 2 Bra Wars: The Quota Strikes Back Contents Due Wednesday 02.27.08 08:00 PM | Grade( Consider the differences between tariffs and import quotas. A tariff is a tax, or excise tax, levied on the sale of imported goods. A tariff raises excise revenue for the government. For example, an EU tariff might take the form of a Zeuro excise tax on each bra coming fror China. The graph below shows the effect of a 2euro tariff in the market for bras in the EU. For simplicity, assume that the EU imports bras only from China. Notice that in the absence of trade, the price of a bra ir the EU would be 12 euros, at the intersection of EU supply and EU demand. 2E! .. 18 1:5 1A 12. 1D z a 2 r i f i i / E B S 10 1-5 213 25 Eli] 35 xii] 1'45 50 QQNTi'W (iii-7' ERAS ftis 3M EL} [Miitienel Before the tariff, trade with China pushes the price of a bra downward to 8 euros in the EU market. At this price, European consumers purchase 30 million bras (as determined by the EU demand curve), and 10 million of these bras are purchased from EU bra makers (as determined by the EU supply curve). The difference, 20 million bras, is imported from China. 2.1. The 2euro tariff discourages imports, pushing the price of a bra to 10 euros in the EU. At this price, European consumers buy million bras. B. 30 c. 25 D. 10 E. 15 After the tariff, the price of a bra rises to 10 euros. Reading from the domestic demand curve for bra European consumers are willing to buy 25 miiiion bras at a price of 10 euros. Contents Due Wednesday 02.27.08 08:00 PM | Grade Aplia Inc.: Assignments Page 1 of 2 Bra Wars: The Quota Strikes Back Contents - Due Wednesday 02.27.08 08:00 PM lGradei Consider the differences between tariffs and import quotas. A tariff is a tax, or excise tax, levied on the sale of imported goods. A tariff raises excise revenue for the government. For example, an EU tariff might take the form of a 2~euro excise tax on each bra coming fror China. The graph below shows the effect of a 2euro tariff in the market for bras in the EU. For simplicity, assume that the EU imports bras only from China. Notice that in the absence of trade, the price of a bra ir the EU would be 12 euros, at the intersection of EU supply and EU demand. FRI [SE 85" 2i] 18 11-5 11; 12' £21m Price 13 .. ,,,,,,,,,,,, %§ 9%. i + E W. a... my.) 4W m w) .1 l3 5 '13 15 ED 25 30 3-5 Al] 5:5 5i} QUART? £3? ERAS; 5131.13 3N EU libiilliions] Before the tariff, trade with China pushes the price of a bra downward to 8 euros in the EU market. At this price, European consumers purchase 30 million bras (as determined by the EU demand curve), and 10 million of these bras are purchased from EU bra makers (as determined by the EU supply curve). The , difference, 20 million bras, is imported from China. 2.2. The 2-euro tariff discourages imports, pushing the price of a bra to 10 euros in the EU. At this price, European producers sell million bras. {2A. 30 .313. 0 c. 25 QB. 15 1.0 After the tariff, the price of a bra rises to 10 euros. Reading from the domestic supply curve, Europe producers are willing to sell 15 miilion bras when the price of a bra rises to 10 euros. Contents Due Wednesday 02.27.08 08:00 PM | Grade Aplia Inc.: Assignments Page 1 of 1 Bra Wars: The Quota Strikes Back Contents Due Wednesday 02.27.08 08:00 PM | Grade Consider the differences between tariffs and import quotas. A tariff is a tax, or excise tax, levied on the sale of imported goods. A tariff raises excise revenue for the government. For example, an EU tariff might take the form of a 2-euro excise tax on each bra coming fror China. The graph below shows the effect of a 2euro tariff in the market for bras in the EU. For simplicity, assume that the EU imports bras only from China. Notice that in the absence of trade, the price of a bra ir the EU would be 12 euros, at the intersection of EU supply and EU demand. PRlQE ERAS 20 A K 13 $3 31mm 16 1t. 12' thins Erica . at Tara? 1' l] ax».ng Bertrand {ix 1: w E D S 10 15 20 2.5 .33 35' 443 £5 50 {EUAZNTJEE 63F ERAS 5.01.0 1H. ELF [Mittions] Before the tariff, trade with China pushes the price of a bra downward to 8 euros in the EU market. At this price, European consumers purchase 30 million bras (as determined by the EU demand curve), and 10 million of these bras are purchased from EU bra makers (as determined by the EU supply curve). The difference, 20 million bras, is imported from China. 2.3. After the imposition of the tariff, the EU imports million bras per year from China. A. 30 B. 10 c. 15 D. 25 Under the tariff, European consumers purchase 25 million bras, and 15 million of these bras are purchased from European manufacturers. The difference, 10 million bras, is imported from China. Contents Due Wednesday 02.27.08 08:00 PM | Grade Aplia Inc.: Assignments Page 1 of 2 05.09.08 wcouasss Welcome, Syed Abbas! _ 25044 Globalization, Spring 2008 Bra Wars: The Quota Strikes Back Contents Due Wednesday 02.27.08 08:00 PM | Grade Consider the differences between tariffs and import quotas. A tariff is a tax, or excise tax, levied on the sale of imported goods. A tariff raises excise revenue for the government. For example, an EU tariff might take the form of a 2euro excise tax on each bra coming fror China. The graph below shows the effect of a 2euro tariff in the market for bras in the EU. For simplicity, assume that the EU imports bras only from China. Notice that in the absence of trade, the price of a bra ir the EU would be 12 euros, at the intersection of EU supply and EU demand. PRICIE QEF 20 m 1,, ~ . Ks; 1:2. to China ijrim .11 is, . 2 QEEU Demand :1 t wiu was r. r E a {1 5 iii 15 20 25 .31] 35 an 55 Si] stigma; at in ELF lidiliiansl Before the tariff, trade with China pushes the price of a bra downward to 8 euros in the EU market. At this price, European consumers purchase 30 million bras (as determined by the EU demand curve), and 10 million of these bras are purchased from EU bra makers (as determined by the EU supply curve). The difference, 20 million bras, is imported from China. 2.4. Under the tariff, European bra consumers lose out they pay more and buy less. European bra mar gain they receive a higher price and sell more. EU governments would earn revenue from a tariffj would earn revenue from an excise tax. For example, excise revenue from cigarette tax is equal to t the excise tax multiplied by the number of cigarettes purchased after the tax. Again, the graph below shows the effect of a 2euro tariff in the market for bras in the EU. Use the 9 (triangle symbols) to shade the area that represents revenue from the tariff of 2 euros per bra. Tool tip: For information on using the graph tool, click the Help button. Aplia Inc.: Assignments Page 2 of 2 £1? E HA5 PRIME iii: ERAS 53 E w ; M... m A» l w WU. p m . ..,.~ V we. .3 3 1% $5 28! 25 313 35 413 £352 513% QEJANTIEVg' {1F BRQS .Ek IN em Eilééilimsl I; 33.33%?! {3? ER.ka 5311) ll»? EU [Millie n5] With a tariff of 2 euros per bra, imports from China fall to 10 million bras. The government earns 2 e imported bra, or a total of 20 million euros (2 euros x 10 million bras). In the diagram, the width of the revenue rectangle is equal to the number of imported bras the di between the quantity of domestically supplied bras (15 million) and the quantity of domestically clerr (25), or 10 million bras. The height of the revenue rectangle is equal to the tariff the difference be Price Ml» Tariff (10 euros) and China Price (8 euros), or 2 euros. Centents Due Wednesday 02.27.08 08:00 PM | Grade Copyright © 2001-2008 Aplia Inc. All rights reserved; Terms and Conditions | Privacy Notice | Security Notice | Support Aplia Inc.: Assignments Page 1 of 2 Bra Wars: The Quota Strikes Back Contents Due Wednesday 02.27.08 08:00 PM | Grade( Consider the differences between tariffs and import quotas. A tariff is a tax, or excise tax, levied on the sale of imported goods. A tariff raises excise revenue for the government. For example, an EU tariff might take the form of a 2euro excise tax on each bra coming fror China. The graph below shows the effect of a 2-euro tariff in the market for bras in the EU. For simplicity, assume that the EU imports bras only from China. Notice that in the absence of trade, the price of a bra ir the EU would be 12 euros, at the intersection of EU supply and EU demand. PRICE tiff: RAE 233 g. 18 ' Etl supper 15 in!» 12 C§1li°l§ E .1 u ........ ............. .. t if .. t i j? 3 Cl 5 10 15 2!] 25 3f! 35 Jill] $3.5 5t! QLMNTSF? E3? EEG-35,- 533.13 M EU litaliitio n5] Before thetariff, trade with China pushes the price of a bra downward to 8 euros in the EU market. At this price, European consumers purchase 30 million bras (as determined by the EU demand curve), and 10 * million of these bras are purchased from EU bra makers (as determined by the EU supply curve). The difference, 20 million bras, is imported from China. 2.5. An import quota puts a legal cap on domestic imports of foreign goods. For example, suppose the EL wants to limit imports of Chinese bras to 10 million per year, the same number of imports as underi euro tariff. By restricting the supply of bras, an import quota of 10 million bras increases the price oi to 10 euros, the same outcome as the 2euro tariff. The effects on EU consumers and producers are the same whether the EU imposes a tariff of 2 euros bra or an import quota of 10 million bras: bra prices rise. EU consumers buy bras, while EU producers, protected from Chinese competition, sell bras. if" A. More; fewer B. The same number of; more C. Fewer; more D. Fewer; the same number of Trade restrictions, such as tariffs or quotas, reduce imports and raise prices. A tariff adds an excise i each imported bra. By directly restricting the suppiy of bras from China, an import quota raises the domestic price of a bra in the EU. As bra prices rise, the quantity of bras demanded declines. Consur Aplia Inc.: Assigmnents Page 1 of 2 Bra Wars: The Quota Strikes Back Contents I Due Wednesday 02.27.08 08:00 PM 1 Grade Consider the differences between tariffs and import quotas. A tariff is a tax, or excise tax, levied on the sale of imported goods. A tariff raises excise revenue for the government. For example, an EU tariff might take the form of a 2euro excise tax'on each bra coming fror China. The graph below shows the effect of a 2euro tariff in the market for bras in the EU. For simplicity, assume that the EU imports bras only from China. Notice that in the absence of trade, the price of a bra ir the EU would be 12 euros, at the intersection of EU supply and EU demand. FRIGE ERA 2n g, f m sugary 1-15 M 12. éiina ¥3rite eta/Ea ng Demand ta l] 5 Ti] 15 23] 25 Bil 35 Ail] £15 53 @LifMTmf SFEBRAE 3331.0 1N EU [Milionsl Before the tariff, trade with China pushes the price of a bra downward to 8 euros in the EU market. At this price, European consumers purchase 30 million bras (as determined by the EU demand curve), and 10 million of these bras are purchased from EU bra makers (as determined by the EU supply curve). The difference, 20 million bras, is imported from China. 2.6. Governments typically manage import quotas with a license system. For example, suppose China an EU agree to limit EU imports of Chinese bras. To facilitate the agreement, the EU might issue 100 br licenses to Chinese bra manufacturers. Suppose each licenseholding Chinese firm can export 100,0l bras to the EU. The licenses, therefore, limit total EU imports to 10 million Chinese bras. Note that tl euro tariff reduces imports to 10 million bras as well. By restricting the supply of bras, an import qu< 10 million bras increases the price of a bra to 10 euros, the same price that arises with the 2euro ta Under this quotalicensing system, the revenue that accrued to EU governments under the tariff sysl will instead go to licenseholding Chinese firms as a windfall profit. The license holders now get to sell bras for an additional 2 euros per bra. Taken together, Chinese Ii: holders earn a total windfall profit of million euros. FA. 40 (73. 0 c. 20 (71). 60 Aplia Inc.: Assignments Page 1 of 1 Bra Wars: The Quota Strikes Back Contents Due Wednesday 02.27.08 08:00 PM I Gradei 3. Given your analysis of the affects of trade restrictions and the differences between quotas and tariffs, which of the following statements best summarizes this Lex column's stand on textile trade restrictions the EU? A. European textile manufacturers will become more competitive if the EU protects them from Chin competition for a few more years. » B. If governments insist on textile trade restrictions, they should impose quotas rather than tariffs. C. Import quotas on Chinese textiles hurt European consumers, help some Chinese producers, and to raise any revenue for EU governments. D. Tariffs and quotas on Chinese textiles benefit everyone in the EU, but tariffs yield the greatest benefits. According to the column, alt trade restrictions harm consumers, and EU textile quotas are particularly l because they harm consumers white increasing the profits of licenseholding Chinese firms instead of increasing the government revenues of EU member countries. That is, quotas bolster producer profits rather than excise revenues in importing countries." The column seems to be saying: If the EU must impose trade restrictions, it should at ieast generate some tariff revenue rather than boosting the prof of licensed firms in China. ...
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