ITindepth9-14 - If there are images in this attachment,...

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If there are images in this attachment, they will not be displayed. Download the original attachment Chapter 9 (Pg. 287-309 and Appendix A 9.2) Nontariff Trade Barriers and the New Protectionism 9.1 Intro Tariffs- historically the most important form of trade restriction, but other types are: Import Quotas, Voluntary Export Restraints, and Antidumping Actions. Tariffs were negotiated down during postwar period, and importance of these nontariff trade barriers increased. 9.2 Import Quotas Quota- most important nontariff trade barrier. Direct quantitative restriction on the amount of a commodity allowed to be imported or exported. (in this section we use partial equilibrium analysis to analyze the effects of an import tariff). Can be used to protect a domestic industry Protect domestic agriculture And/or for balance-of payments reasons. Very common in Western Europe after WWII, since then, used by practically all Industrial nations to protect their agriculture Developing nations to stimulate import substitution of manufactured products and for balance-of- payments reasons. Partial Equilibrium effectà Page 289, figure 9.1 Import Quota vs Import Tariff
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Given Import Quota à Increase in Demand à Higher Domestic Price + Higher Domestic Production than with an equivalent Import Tariff Given Import Tariff à Increase in Demand à same Domestic Price & Production à but will result in Higher Consumption & Imports than with an equivalent Import Quota. Since adjustment to any shift in Demand or Supply occurs in… Domestic Price with an (effective) Import Quota Quantity of Imports with a Import Tariff … Import Quota completely replaces the market mechanism rather than simply altering it (as Import Tariff Would) Import Quota involves the Distribution of Import Licenses. If Gov’t doesn’t auction off these licenses in competitive market, firms that receive the licenses will reap monopoly profits. In this case, Gov’t must decide the basis for distributing licenses among potential importers of the commodity. Choices may be made arbitrarily , rather than efficiency consideration, and they tend to remain frozen even in face of changes in relative efficiency of various actual and potential importers of the commodity. Since import licenses = monopoly profits, potential importers tend to lobby and even bribe Gov’t officials to get them (rent-seeking activities). Import Quotas replace the market mechanism , & may result in waste from the point of view of the economy as a whole and can contain corruption.
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Import Quota limits imports to the specified level of certainty, while the trade effect of Import Tariff may be uncertain. Reason: Elasticity of Demand and Supply is often unknown, making it hard to estimate the import tariff required to restrict imports to a desired level. Foreign Exporters may absorb all or part of the tariff by
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ITindepth9-14 - If there are images in this attachment,...

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