17%20Barriers%20to%20Imports,%20IQs%20and%20VERs

17%20Barriers%20to%20Imports,%20IQs%20and%20VERs - Barriers...

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1 1 • Tariffs: Measuring the Amount of Protection • Import Quotas • Voluntary Export Restraints • Other Import Barrier Instruments 2 Measuring the Amount of Protection • A tariff on an imported good raises the price received by domestic producers of that good. 3 Measuring the Amount of Protection Simple measurements of protection: 1. If the tariff is ad valorem , the tariff rate itself should measure the amount of protection. 2. If the tariff is specific , dividing the tariff by the price net of the tariff gives the ad valorem equivalent. 4 Measuring the Amount of Protection Problems with these simple measurements: 1. If the small country assumption is NOT a good approximation, part of the effect of a tariff will be to lower foreign export prices rather than to raise domestic import prices. 2. Tariffs also have very different effects at different stages of production of a good.
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2 5 Measuring the Amount of Protection Assumption #1: Two countries. 1. Thailand, and 2. Indonesia. 6 Measuring the Amount of Protection Assumption #2: One final good. An automobile which sells on the world market for $8,000. 7 Measuring the Amount of Protection Assumption #3: Intermediate goods. Automobiles are made using auto parts that cost $6,000. 8 Measuring the Amount of Protection Suppose that Indonesia has an auto parts industry but wants to develop an auto assembly industry. With free trade , domestic assembly takes place if its costs $2,000 or less.
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3 9 Measuring the Amount of Protection Suppose that Indonesia imposes a 25% tariff on imported autos. With the tariff , domestic assemblers can now charge $10,000 per automobile instead of $8,000. With the tariff , domestic assembly will take place if it costs $4,000 or less. 10 Measuring the Amount of Protection • A 25% tariff by Indonesia on imported autos provides domestic assemblers with an effective rate of protection of 100%. 11
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17%20Barriers%20to%20Imports,%20IQs%20and%20VERs - Barriers...

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