{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

lec14-eco101-10

lec14-eco101-10 - International Trade Lecture 14 c...

Info icon This preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
International Trade Lecture 14 c Marc-Andreas Muendler University of California, San Diego November 16, 2010
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
14. Instruments of Trade Policy Econ 101, c M. Muendler Instruments of Trade Policy Instruments of trade policy Tariffs and export subsidies: Price distortions Quotas: Quantity restrictions ‘Behind-the-border’ restrictions: Quality, environmental and labor standards, procurement restrictions Terms-of-trade and welfare effects (general and partial equilibrium) Winners and losers: Distribution (general and partial equilibrium)
Image of page 2
14. Instruments of Trade Policy Econ 101, c M. Muendler Restrictions and Barriers to Trade Tariffs and trade barriers drive a wedge between external (world- market) prices and internal (domestic) prices Import tariffs have the same terms-of-trade effect as export taxes Example . Home, a cloth exporter, imposes an import tariff τ on food. Internal (domestic) relative prices: P C P F (1+ τ ) External (world-market) relative prices: P C /P F Home relative cloth demand Q d C /Q d F rises, Home relative cloth sup- ply Q C /Q F falls for any given world-market price ratio P C /P F
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
14. Instruments of Trade Policy Econ 101, c M. Muendler Tariffs, the Terms of Trade, and Welfare Home welfare may or may not improve with import tariffs If Home is a small country and world-market prices do not change with its policies, Home suffers an unambiguous welfare loss from a tariff If Home is a large country and world-market prices change with its policies, Home may realize welfare gains under certain conditions (Home behaves like a monopsonist for imports) If Home is a large country and world-market prices change with its policies, the Home ToT improve with a tariff on Imports
Image of page 4
14. Instruments of Trade Policy Econ 101, c M. Muendler Tariffs in a Small Country and the Price Wedge As food imports from abroad arrive at the Home border, they are taxed with a tariff. This makes food more expensive at Home so that relative demand for food import goods drops. Reduced Home demand for food import goods does not matter for world markets. The external (world-market) price ratio P ext C /P ext F = P C /P F remains unchanged. However, inside the Home country, the food tariff raises the relative prices of food. So, the internal (domestic) price ratio P int C /P int F drops below the prior level. Home consumers and producers face a reduced internal price ratio P int C /P int F . So, for any external price ratio P ext C /P ext F = P C /P F , consumers demand relatively more cloths and producers make relatively more food.
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
14. Instruments of Trade Policy Econ 101, c M. Muendler Welfare Effects of an Import Tariff in a Small Country Home food output Home cloths output Q C Q F 0
Image of page 6
14. Instruments of Trade Policy Econ 101, c M. Muendler Welfare Effects of an Import Tariff in a Small Country Home food output Home cloths output Q C Q F 0 -P P F
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern