Chap013EndofChapterproblems

Chap013EndofChapterproblems - Chapter 13 The Instruments of...

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Chapter 13 - The Instruments of Trade Policy CHAPTER 13 THE INSTRUMENTS OF TRADE POLICY V. Answers to End-of-Chapter Questions and Problems 1. Preferential duties discriminate by trade partner in the importation of any given product, while the objective of MFN treatment (or normal trade relations) is to be nondiscriminatory. Because, under MFN, any tariff reduction to one partner is extended to all others with whom MFN agreements exist, the reduction does not benefit only one or a few partners (as it would under preferential duties) to the exclusion of other trading partners. 2. Those industries and residents of a country who can benefit from protection are continuously seeking mechanisms by which their well-being can be enhanced. As tariffs have been reduced through international negotiations, these economic agents have sought to preserve their protected status by pushing for legislation and regulations regarding other barriers (NTBs) not covered by the negotiations. 3. Value added under free trade is $1,000 - ($300 + $500) = $200. In the small country case, the price of good F becomes $1,000 (1 + 0.20) = $1,200. The price of input A becomes $300 (1 + 0.20) = $360, and the price of input B becomes $500 (1 + 0.30) = $650. Value added under protection is thus $1,200 - ($360 + $650) = $190.
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