Econ 161 - Lecture 7

Econ 161 - Lecture 7 - GlobalIntegrationofLatinAmerica...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: GlobalIntegrationofLatinAmerica Lecture7 c Marc-AndreasMuendler UniversityofCalifornia,SanDiego April19,2011 7.CasesforTradeIntervention Econ161, c M.Muendler Protectionism • Theargumentsforfreetradefocusonthegainsfromtradeforasmall countryandapplytoalong-term,staticperspectiveintheabsenceof externalities • Theargumentsneglectanarrowandabroadargumentforprotec- tionism – Alargecountrymaytiltthetermsoftradeinitsfavorbyrestricting trade – Inthepresenceofinstantaneousordynamiceconomiesofscale, traderestrictionsmaybetothebenefitoftheworldasawhole 7.CasesforTradeIntervention Econ161, c M.Muendler TheNarrowArgumentforProtectionism • Inrestrictingtrade,alargecountrycantiltthetermsoftrade(ToT)in itsfavorbecauselessimportsdepresstheirworldprice • Bothexportandimportrestrictionsimprovealargecountry’sToT Conversely,bothexportandimportpromotionworsenalargecountry’sToT. • Beggar-thy-neighborpolicies,however,tendtoresultinretaliation • Developingcountriesmaybetoosmalltoaffectworld-marketprices substantially TradebarriersinlargeindustrializedcountriescanharmLatinAmerica. 7.CasesforTradeIntervention Econ161, c M.Muendler Tariffs,theTermsofTrade,andWelfare • Homewelfaremayormaynotimprovewithimporttariffs – IfHomeisa small countryandworld-marketpricesdonotchange withitspolicies,Homesuffersanunambiguouswelfare loss from atariff – IfHomeisa large countryandworld-marketpriceschangewith itspolicies,Homemayrealizewelfaregains (Homeimitatesamonopsonistforimports,monopolistforexports) • IfHomeisa large countryandworld-marketpriceschangewithits policies,theHomeToTimprovewithatariffonImports 7.CasesforTradeIntervention Econ161, c M.Muendler Tariffsina Small CountryandthePriceWedge • Whencomputerimportsfromabroadarriveattheborder,theyaretaxedwithat ariff. Astheybecomemoreexpensive,relativedemandforcomputersdrops. • ReducedHomedemandforcomputersdoesnotmatterforworldmarkets. The external (world-market)priceratio P ext C /P ext R = P C /P R remains unchanged. • However,insidetheHomecountry,thecomputertariffraisestherelativepricesof computers. So,the internal (domestic)priceratio P int C /P int R rises abovethepriorlevel.abovethepriorlevel....
View Full Document

This note was uploaded on 08/14/2011 for the course ECON 161 taught by Professor Muendler during the Spring '11 term at San Diego.

Page1 / 21

Econ 161 - Lecture 7 - GlobalIntegrationofLatinAmerica...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online